Budgets

Question 1

what are the two methods of budgeting

Answer 1

1)Incremental Budgeting-previous years budget figures used as a
basis and a small % is added to allow for general rises due to inflation

2)Zero-based budgeting-previous years budget is scrapped and the new budget is prepared from scratch, all items need to be justified

Question 2

What are the advantages of incremental budgeting

Answer 2

-Generally quick and easy to prepare as you have a starting point
-Suitable for stable businesses where an incremental can be applied

Question 3

What are the disadvantages of incremental budgeting

Answer 3

-Inefficiencies and overspending remain in the budget e.g high spending in one year
-Budget holders may try to spend all their budgeted expenditure in order to seek increment for the next year

Question 4

what are the advantages of Zero-based budgeting

Answer 4

-Each item going into the budget has to be justified(no wasted cost)
-Inefficiencies and overspending can be identified and avoided
-A range of staff get to participate in the budget which may prove motivating

Question 5

what are the disadvantages of Zero-based budgeting

Answer 5

-Time consuming to prepare which may take managers away from normal duties
-May be cost effective to prepare every year(wages)

Question 6

How is purchases(units) calculated in a budget

Answer 6

Closing+sales-opening=purchases

Question 7

How is a budgeted bank figure calculated

Answer 7

Opening bank(actual SFP)

**+TR receipts **
opening TR
+revenue (IS)
- Closing TR(additional info)

- TP payments
opening TP
+purchases(IS)
-Closing TP(additional info)

Less expenses(IS, no dep)
Less drawings

closing bank balance(budgeted SFP)