Unit 3.9 Budgets and variances

Question 1

Cost centres

Answer 1

a sector of a business where costs are incurred and recorded

Question 2

Profit centres

Answer 2

a sector of a business where both costs and revenues are identified and recorded

Question 3

How to separate cost and profit centres

Answer 3

By function
By department
By product
By site
By region

Question 4

Aim of budgets for cost and profit centres

Answer 4

minimize costs and maximize profits

Question 5

Evaluate cost and profit centres as a business tool

Answer 5

advantages

• efficiency monitoring
• motivator (financial reward)
  new perspective
• Decision-making and planning (budgeting)

disadvantage
- stress
- qualitative factors are overlooked
- interdependence and coordination are at risk
- not always feasible, eg. small

Question 6

Budget

Answer 6

a quantitative financial plan that estimates the expenditures and revenues for a specified future period

Question 7

Budget holder

Answer 7

the person or group of people who formulate the budgets and are in charge of their achievements

Question 8

Variance

Answer 8

the discrepancy between the budgeted figure and the actual (favourable or adverse)

Question 9

Construct a budget

Answer 9

Budget for ABC or ABC ltd fot he period ended 20XX

Column 1.
Income
Total income

Expenses
Total expenses

Net income

Column 2.
Budgeted figure

Column 3.
Actual figure

Column 4
Variance (F or A)

Question 10

Evaluation of a budget

Answer 10

advantages

• control
• coordination
• planning
• motivation
  can help stay within the limits of the budget

disadvantages
- a source of conflict
- decreased quality
- biased (overestimated budget)

Question 11

A budget is like

Answer 11

a piece of cake