Topic 16 - Using Budgets

Question 1

2 drawbacks of using budgets?

Answer 1

1. Rivalry if departments compete for money

2. Restrictive, stops opportune spending to capitalise on an opponents downfall.

Question 2

What does annually or monthly analysing budget variances benefit a firm?

Answer 2

Allows it to correct actions, improve plans and improve decision making

Question 3

Solving adverse variances, 3 ways to cure adverse revenues?

Answer 3

Lower prices (PED)

Increase promotion (cost)

Update product range (timely and unpredictable success)

Question 4

Solving adverse variances, 3 ways to cure adverse costs?

Answer 4

Cheaper materials/inputs (quality/reliability?)

Cut wages (poor motivation)

Increase productivity (machinery or training=$$$)

Question 5

3 benefits of using budgets

Answer 5

1. Controls overspending = path to profits.
2. Sales/costs budgets are motivating.
3. Forces managers to review activities = a better tomorrow.