Using Budgets and Calculation Tools

Question 1

What is a budget?

Answer 1

A budget is a financial plan for an organisation that is prepared in advance?

Question 2

What is the purpose of a budget?

Answer 2

Budget helps creates plans
Budget communicates and coordinates in the plans
Budget can be used to monitor and control

Question 3

Name two types of budget?

Answer 3

Fixed Budget - When output can be accurately predicted in advance. Budget based on income and costs arising.

Flexible Budget - Used when it is more difficult to predict the level of output or activity, income and costs level. Is then adjusted accordingly once the level of output is known.

Question 4

Name two types of variances?

Answer 4

Adverse - when the cost is greater than the budgeted cost, result in lower profits
Favourable - when the actual cost is lower than the budgeted cost, result in higher profits