Week 8 - Budgeting Flashcards
1
Q
What is Budgeting?
A
- Plan of Action prepared in advanced of the period to which it relates
- Sets Out Costs and Revenues Expected to be Incurred or Earned in the Future periods
2
Q
State the 2 types of Budgets
A
- Periodic
- Continual / Rolling
3
Q
What’s 3 Features of Periodic Budgeting?
A
- Prepared for a Set Length of Time (1 year)
- Becomes a One-Off exercise planned into the business cycle
- May be revised
4
Q
What 3 Features of Continual/Rolling Budgeting?
A
- Continually updated
- May be broken down into monthly periods
- Drop a month, pick up a month
5
Q
What are 7 Functions of Budgets?
A
- PLANNING - gives clear idea of expectations and performance
- CO-ORDINATION - all activities of the various parts of org have to work in harmony
- COMMUNICATION - everyone should have clear understanding of part they have in achieving annual budget
- CONTROL helps manage and control activities and track expenditure
- MOTIVATION - motivation tool
- PERFORMANCE EVALUATION - if budget is met
- AUTHORISATION OF EXPENDITURE - allocating funds to certain department
6
Q
What are 5 Benefits of Budgets?
A
- Promotes Forward Thinking and Identification of Short-Term Problems
- Motivates Managers to Better Performance
- provides Basis for a System of Control
- provides System of Authorisation
- help Co-Ordinate the various Sections of the Business
7
Q
Master Budgets (USE WORD DOC)
A
.
8
Q
Sales Budgets (USE WORD DOC)
A
.
9
Q
3 Reasons why Preparing a Cash Budget is Important
A
- Ensure Sufficient Cash to Meet Demands/Carry out Activities
- Give Advance Warning of Need for Overdraft or Loans
- Plan for Investment of Cash Surpluses
10
Q
What are 4 Criticisms of Budgets
A
- Fast Changing Environments
- Focus on Short Term
- Quantitative rather than Qualitative
- Encourage Manipulation of Accounts
11
Q
What are the 2 Sub Variances of SALES VARIANCE?
A
- SALES VOLUME VARIANCE
- SALES PRICE VARIANCE
12
Q
What is the Formula for SALES VOLUME VARIANCE?
A
(Actual Volume - Budgeted Volume) x Budgeted Sales Price
13
Q
What is the Formula for SALES PRICE VARIANCE?
A
(ACTUAL PRICE - Budget Price) x Actual Quantity
