Week 8 - Budgeting

Question 1

What is Budgeting?

Answer 1

• Plan of Action prepared in advanced of the period to which it relates
• Sets Out Costs and Revenues Expected to be Incurred or Earned in the Future periods

Question 2

State the 2 types of Budgets

Answer 2

• Periodic
• Continual / Rolling

Question 3

What’s 3 Features of Periodic Budgeting?

Answer 3

• Prepared for a Set Length of Time (1 year)
• Becomes a One-Off exercise planned into the business cycle
• May be revised

Question 4

What 3 Features of Continual/Rolling Budgeting?

Answer 4

• Continually updated
• May be broken down into monthly periods
• Drop a month, pick up a month

Question 5

What are 7 Functions of Budgets?

Answer 5

• PLANNING - gives clear idea of expectations and performance
• CO-ORDINATION - all activities of the various parts of org have to work in harmony
• COMMUNICATION - everyone should have clear understanding of part they have in achieving annual budget
• CONTROL helps manage and control activities and track expenditure
• MOTIVATION - motivation tool
• PERFORMANCE EVALUATION - if budget is met
• AUTHORISATION OF EXPENDITURE - allocating funds to certain department

Question 6

What are 5 Benefits of Budgets?

Answer 6

• Promotes Forward Thinking and Identification of Short-Term Problems
• Motivates Managers to Better Performance
• provides Basis for a System of Control
• provides System of Authorisation
• help Co-Ordinate the various Sections of the Business

Question 7

Master Budgets (USE WORD DOC)

Answer 7

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Question 8

Sales Budgets (USE WORD DOC)

Answer 8

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Question 9

3 Reasons why Preparing a Cash Budget is Important

Answer 9

• Ensure Sufficient Cash to Meet Demands/Carry out Activities
• Give Advance Warning of Need for Overdraft or Loans
• Plan for Investment of Cash Surpluses

Question 10

What are 4 Criticisms of Budgets

Answer 10

• Fast Changing Environments
• Focus on Short Term
• Quantitative rather than Qualitative
• Encourage Manipulation of Accounts

Question 11

What are the 2 Sub Variances of SALES VARIANCE?

Answer 11

• SALES VOLUME VARIANCE
• SALES PRICE VARIANCE

Question 12

What is the Formula for SALES VOLUME VARIANCE?

Answer 12

(Actual Volume - Budgeted Volume) x Budgeted Sales Price

Question 13

What is the Formula for SALES PRICE VARIANCE?

Answer 13

(ACTUAL PRICE - Budget Price) x Actual Quantity