1. Management Accounting

Question 1

Explain what is meant by a budget.

Answer 1

A budget is a financial plan that is used to set targets for different parts of a business, (departments, branches, profit centres, etc.)

Question 2

Which sized organisations is budgeting most useful too?

Answer 2

Larger organisations

Question 3

Why is budgeting most useful to larger organisations?

Answer 3

Assenior owners and managers are unable to maintain control of every aspect of the business

Question 4

What is meant by variance when analysing performance to budgets?

Answer 4

It is the difference between the target to achieve or stick to compared to the actual performance

Question 5

Performance compared to a budget is described as being either a_____ or f_______

Answer 5

adverse

favourable

Question 6

What are the 3 main types of budget?

Answer 6

1. Sales revenue
2. Expenditure budgets
3. Profit budgets

Question 7

What is the main advantage of budgeting?

Answer 7

+ Can dissect underperformance

Question 8

Potentially higher budgets that are unforeseen mean that…

Answer 8

a higher budget could have been set which would improved performance further.

Question 9

What are 2 other disadvantages of budgeting?

Answer 9

• Inaccurate? Demotivating.
• Can encourage overspending as parts of the business spend the exact value of their allocated expenditure budget out of fear that their budget will be reduced in the next budgetary cycle