3.5.2

Question 1

What are three main types of budget that a business can set?

Answer 1

-Income budgets: forecast the amount of money that will come into the company as revenue.
-expenditure budget: predicts what’s the business total costs will be your years.
-profit budget: income budget - expenditure budget.

Question 2

3 benefits and drawbacks of budgeting

Answer 2

Benefits:
-help achieve targets like keeping costs down or revenue high.
-let’s head of department delegate authority to budget holders. Getting authority is motivating.
-help persuade investors that the business is successful

Drawbacks
-can be restrictive as fix budgets can stop firms responding to market conditions.
-inflation is difficult to predict some prices can change by levels much greater than average
-can cause rivalry between departments if they have to compete for money

Question 3

What is historical budgeting?

Answer 3

Simple method that Uses historic data

Question 4

What’s the difference between fixed and flexible budgets

Answer 4

A flexible budget is a financial plan that varies based on activity level or production units. A fixed budget is a financial plan that does not change due to activity or output leve

Question 5

Contribution per unit formula

Answer 5

Selling price per unit -variable cost per unit

Question 6

Total contribution

Answer 6

Contribution x number of units sold

Question 7

Break even output formula?

Answer 7

Fixed costs
—————
Contribution per unit