budgets

Question 1

whats a budget

Answer 1

a financial plan for the future

Question 2

what are budgets based on

Answer 2

objectives

Question 3

what will a budget show

Answer 3

the money needed for spending and how it will be financed

Question 4

what do they force managers to do

Answer 4

think ahead and improve coordination

Question 5

how long are majority budgets set for

Answer 5

12 months to coincide with accounting period

Question 6

what do small businesses often underestimate

Answer 6

the importance of financial control when running their businesses and budgeting is an easily adoptable method of control.

Question 7

budgets fulfil the following specific purposes

Answer 7

control and monitoring
planning
coordination
communication
efficiency
motivation

Question 8

how do budgets fulfil control and monitoring

Answer 8

targets are translated into budgets. how successful they are can be compared with the budget. any reasons for failing can be analysed and appropriate action taken. more effective to continually monitor budgets

Question 9

how do budgets fulfil planning

Answer 9

forces management to think ahead. without it they may work day-by-day and only deal with opportunities and issues when they arise. budgeting anticipates future problems and solutions

Question 10

how do budgets fulfil communication

Answer 10

planning allows objectives to be communicated to workforce. removes an element of uncertainty when decision making. budgeting also shows businesses priorities and highlights costs that need to be controlled

Question 11

how do budgets fulfil coordination

Answer 11

budgeting is one way in which managers can coordinate and control activities of the many business areas

Question 12

how do budgets fulfil motivation

Answer 12

provides targets and standards. fear of failing to reach a budgeted target is an incentive to workforce

Question 13

how do budgets fulfil efficiency

Answer 13

empower staff by delegating decision making. budgeting gives financial power to lower levels of management who are best to make decisions at their point within the organisation

Question 14

what are the 3 types of budget

Answer 14

income
expenditure
profit

Question 15

whats income budget

Answer 15

forecasts amount of money thatll come into business as revenue.

Question 16

how do businesses find income budget

Answer 16

to do this business must predict how much it will sell and at what price. done using historical sales figures and market research

Question 17

whats expenditure budget

Answer 17

predicts businesses total costs for the year

Question 18

how do managers estimate sales for expenditure budget

Answer 18

using historical figures

Question 19

whats profit budget

Answer 19

income budget- expenditure budget

Question 20

what is zero-base budgeting

Answer 20

budget holders start with a budget of £0 and have to get approval to spend money on activities.

Question 21

what are the figures used in ZBB based on

Answer 21

potential performance

Question 22

process for ZBB

Answer 22

budget holders have to plan the whole years activities ask for money to spend on them and be prepared to justify requests to financial directors

Question 23

what skill do budget holders need

Answer 23

good negotiating skills

Question 24

advantages of ZBB

Answer 24

-allocation of resources should be improved
-reduced unnecessary costs and eliminate inefficient practices- questioning attitude developped
-encourages managers to look for alternatives
-improved staff motivation as evaluation skills practised and developed firm operations knowledge

Question 25

disadvantages of ZBB

Answer 25

-time consuming to collect and analyse data
-skilful decision making required
-threatens status quo decrease motivation
- managers may not be prepared to justify spending on certain costs