Wk 8 Budgeting Flashcards
What is a budget?
Quantitative financial plan for the future, plan for cashflows/production lines/market analysis etc
What is a periodic budget?
Prepared for a set length of time, one-off exercise
What is a continual/rolling budget?
Continually updates, potentially broken down into monthly periods
What is incremental budgeting?
Uses the previous budget as a base, take last performance and change by determined figures or percentages
What is a zero-based budget (ZBB)?
Ignored previous budgets in building new budget
What are budgets used for?
- planning
- co-ordination
- communication
- control
- motivation
- performance evaluation
- authorisation of expenditure
What are the benefits of a budget?
- promotes forward thinking
- helps co-ordinate the business
- motivates managers to better performance
- provides a basis for a system of control
- provides a system of authorisation
What are the stages of budgeting?
- define long term objectives
- form budgeting committee
- identify limiting factors
- prepare initial set of budgets
- prepare budgets
- review, check, and revise budgets
- prepare master budget
- communicate to management
- regular review
What are the 3 master budgets?
- cash budget
- budgeted income statement
- budgeted balance sheet
What is a cash budget?
opening cash + receipts - payments = closing cash
ensures sufficient cash to meet demands/carry out activities, can give advance warning for overdraft/loans
What can sales variance be broken down into?
Sales volume variance (measures element of total variance caused purely by the difference in sales volume)
Sales price variance (element of total variance caused purely by difference in sales price)
What are some criticisms of budgets?
- fast changing environments
- focuses on short term
- quantitative rather than qualitative
- time consuming
