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)
