Topic 19 + 35 Flashcards
State 5 benefits of Budgeting
Planning Co-ordination Communication Control Decision Making
How is Planning a benefit of budgeting
Allows for prep for future
Set projected figures so business = organised
How is Co-ordination a benefit of budgeting
Budgets prepared for separate departments, need to ensure individual budgets don’t conflict. They are Interdependent
Why are Comms a benefit of budgeting
Managers are able to communicate with each other; linked to coordination
How is Control a benefit of budgeting
Budgets compared with actual results
worse than forecast = action taken
better than forecast = good practice identified and benchmarked
How is Decision Making a benefit of Budgeting
Forecasting results in decisions being made. E.g to increase sales, decisions must be made regarding product levels, Sales and expenses
What is a budget
Short term financial Plan - Calcs financial info for near future
State 4 limitations of Budgeting
Inaccurate Data
Departmental Rivalry
Demotivating
Over-riding goal
How is Inaccurate Data a Limitation of Budgeting
It is based on estimates which results in managers being too optimistic and some pessimistic
How is Departmental Rivalry a Limitation of Budgeting
Bidding for amounts creates competition between departments which may lead to lack of co operation and cohesion within the business
How is Demotivating a limitation of Budgeting
Budgets must be at a attainable standard.
if unrealistic = impossible to achieve, demotivates
if too easy = encourages slacking
How is an Over riding Goal a limitation of budgeting
May lead to losing sight of the core objectives
What does Sales Budget show?
It shows expected Sales in units and Sales Revenue
Why is the Sales Budget created first
This is because all other budgets are based off forecast Sales and limiting factor mostly is demand
What are the factors that Forecast Sales depend on that are out of the businesses’ control
Changing Customer Tastes
Competitors Actions
Economy
Government Policy (Interest Rates)
Example of a Sales Budget
Budgeted Sales (UNITS) = 10
Est. Selling Price = £2,100
Budgeted Sales Revenue = ?
£ 21,000
What does the production budget calculate
How many items needed to be produced in units
What is the formula to work out units to be produced
Est Sales + Est Closing Inv - opening inv = units to produce
When is a Production budget produced
If the business a manufacturer
Explain the benefit of preparing a Production Budget
Leads to Planning which can avoid excess inventories, leading to storage problems
Planning production will help ensure sales target can be met
Also allow for co-ordination
Explain the Trade Payables Budget
When a business buys supplies on credit, purchase budget will be linked separate trade payables budget as purchases and payments wont be perfectly synced
Explain the Trade Receivables Budget
When business sells goods on credit, sales budget linked to Receivables budget because sales + receipts not perfectly synced
General Format for Payables / Receivables Budget
Months at the top going horizontally On the left going down: Bal b/d Cr Sales/Purchases Receipts from customers/payments to suppliers Bal c/d
Why is a Labour Budget Prepared?
Its prepared to show the estimated hours of labour required to produce the budgeted levels of production, (prepared after the production budget)
Give 3 uses of a labour budget
- Budgetary Control for Cost of Labour
- Co-ordination with production/cash budget
- Co-ordination with Human Resources Dpt. for workforce planning (Shifts/additional staff)
Benefits of Budgetary Control
Planning Monitoring Control Improved Staff Motivation Co-ordination Raising Finance
Limitations of Budgetary Control
Inflexibility Time Consuming Based on Forecasts Demotivating Lack of Expertise
Advantages of Incremental Budgeting
Easy Implementation
Realistic
Stability
Reduces Rivalry between departments
What is Incremental Budgeting
A method where previous budget is used as a base to form new budget; taking into acc. anticipated changes
What is Zero Based Budgeting
This is forming budgets from nothing using previous years budget/spending numbers.
