Budgeting

Question 1

What is a budget

Answer 1

1 a financial plan that covers a specific time period
2 describes expected levels of income and expenditure
3 important management tool to help with financial control

Question 2

What should a budget be driven by

Answer 2

Objectives

Question 3

The budget and monitoring process is on going
Describe the typical process

Answer 3

1 establish aims and objectives of business- profit and market share targets and targeted turnover
2 set production, marketing and financial budget (3 main functional budgets)
3 further break down the cud get (training budget, health and safety budget, direct selling budget)
4 procedures for monitoring budget established
5 any variance from predicted budget examined and reacted to
6esperience and knowledge gained from setting one budget should be applied to setting of following periods budget

Question 4

Name and describe the 3 main functional budgets

Answer 4

1 production budget - attempts to establish output levels - cost of raw material labour costs and other production costs
2 marketing budget - cost of marketing strategy
3 financial budget based on business cash flow forecast ncan income cover expenditure

Question 5

What are the benefits for a business does the budgeting process provide

Answer 5

1 improved management control of organisation - managers know who is spending what and why
2 improved financial control - expenditure is monitored and variations from budget explained and related to
3 managers are aware of responsibilities they are in control of budgets and aware of the objectives of the business
4 budgeting ensures resources are used effectively
5 it can motivate managers
6 improves communication systems as it encourages communication up and down hierarchy

Question 6

What problems can the budgeting process

Answer 6

1 those excluded from the budgeting process may not be committed to the budgets
2 if budgets are inflexible then changes in the market may not be met by changes in the budget
3 an effective budget can only be based on good quality information - many managers overstate their budget to protect departments

Question 7

What is zero budgeting

Answer 7

managers start with a clean sheet and have to justify expenditure

Question 8

What is the advantage of zero budgeting

Answer 8

1 improves control
2 helps allocate resources
3 limits tenderacy for budgets to increase annually
4 reduces unnecessary costs
5 motivates managers to look at alternative options

Question 9

What is budgetary control

Answer 9

Analyzing any unplanned changes in budget - expenditure and revenue can be greater or less than expected

Question 10

Describe the calculation of variance

Answer 10

actual figure is compared with budgeted figure and shown as with favorable (f) of adverse (A) variance is totalled to gain overall F or A

Question 11

When does a favorable variance occur

Answer 11

When expenditure is less than expected or revenue is higher than expected