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AS Business Studies Theme 2 > Budgets > Flashcards

Flashcards in Budgets Deck (9)
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1
Q

Define a BUDGET

A

A budget is made up of forecasts or plans for the future financial activities of a business. It is usually expressed in monetry terms but can also be done through sales volume, output or other non-financial terms.

2
Q

What are the three types of budget?

A

Income, profit, expenditure

3
Q

What are the main approaches to budgeting?

A

0 based budgeting - budgeting based on new predictions and data.
Historical budgeting - budgeting based off of existing data or last years figures.

4
Q

What are the advantages to budgeting?

A
  • Establishes priorities and sets targets
  • Turns objectives into practical reality
  • Provides direction and co-ordination
  • Assigns responsibilities
  • Allocates resources
5
Q

What are the problems faced when budgeting?

A
  • Dependent on forecasts and predictions
  • Costs are subject to change
  • Actions of competitors are unknown
  • Managers may lack experience
  • Takes time and effort which is an opportunity cost
6
Q

Define VARIANCE

A

Variance is the difference between the budgeted amount and the actual amount.

7
Q

Define VARIANCE ANALYSIS

A

Variance analysis is the process of calculating and interpreting these variances.

8
Q

What are the different types of variance?

A

Favourable (good for the business) and adverse (bad for the business)

9
Q

What are possible causes of variance?

A
  • Actions of competitors
  • Actions of suppliers
  • Changes in the economy
  • Internal ineffiency
  • Internal decision making