Lucy- Budgets

Front 1

What is a budget?

Back 1

A plan that is agreed in a advance

Front 2

What is the difference between a budget and a forecast?

Back 2

A prediction of what might happen whereas the budget is the planned outcome the firm hopes to achieve.

Front 3

What does the budget show?

Back 3

The money needed for spending and how it might be financed

Front 4

What is a budget based on?

Back 4

Business objectives

Front 5

What is a budget used to focus?

Back 5

Managers on planning ahead and improving co-ordination

Front 6

How long are most budgets set for?

Back 6

12 months

Front 7

What are the specific purposes of budgeting?

Back 7

Control and monitoring

Planning

Co-ordination

Communication

Effciency

Motivation

Front 8

What is control and monitoring?

Back 8

- budgeting allows management to control the business.

- it does this by setting objectives and targets

- then theyre translated into budgets for a particular period

- to find success compare budgets with actual results.

- then any failure can be analysed and saved

Front 9

What is planning?

Back 9

- budgeting forces management to think ahead

- budgeting plans for the future

- it anticipates problems and their solutions.

Front 10

What is co-ordination?

Back 10

Budgeting is one way in which managers can co-ordinate and control activities of the many areas of business

Front 11

What is communication?

Back 11

- Planning allows the objectives of the business to be communicated to the workforce

- managers (workers have a clear framework to operate with).

- removes element of uncertainty

- prioritys of business/costs are highlighted.

Front 12

What is effciency?

Back 12

Budgeting gives financial control to lower levels of management who are best able to make decisions at their point within the organisation.

Front 13

What is motivation?

Back 13

Provides targets and standards.

Fear of failure to reach targets can be an incentive to the workforce.

Front 14

What are the two types of budgets?

Back 14

Sales budget

The production cost budget

Front 15

What does it mean when budgets are prepared using historical figures?

Back 15

That the data used to prepare the budgets is based on data that the business has gathered in the past.

Adjustments will have been made known for events in the future.

Front 16

What are some examples of budgets that use historical figures?

Back 16

- sales volume

- sales revenue

- production costs

- overheads

- total cost

- marketing

- R&D

- profit

- cash

- master

Front 17

Describe sales volume budget?

Back 17

A key budget- shows planned sales levels

Front 18

Describe sales revenue budgets.

Back 18

Uses sales volume and prices to show planned revenue.

Front 19

Describe production cost budget.

Back 19

Based on sales volume and shows all planned production costs.

Front 20

Describe overhead budgeting.

Back 20

Shows all planned indirect costs such as insurance, rent and office wages.

Front 21

Describe total cost budgeting.

Back 21

Shows all planned business costs.

Front 22

Describe marketing budgeting

Back 22

Shows planned spending on, for example research, advetising, promotion and sales

Front 23

Describe R&D budgeting.

Back 23

Shows planned expenditure in research and development

Front 24

Describe profit budgeting.

Back 24

Shows planned revenue, costs and profit

Front 25

Describe cash budgeting.

Back 25

Shows planned cash inflows and outflows and cash balances

Front 26

Describe master budgets.

Back 26

Shows a summary of all budgets- including cost, revenue and profit

Front 27

What is zero based budgets (ZBB)?

Back 27

- usually budgets are based on historical data.

- ZBB is when in some areas of the business its not easy to quantify costs. When costs cannot be justified no budget is allocated to them (ZBB)

Front 28

What would the manager do in the instance of ZBB?

Back 28

They must show that a particular item of spending will in the future generate an adequate amount of benefit to allow it to be allocated a budget.

The concept of opportunity cost is used in this instance, so a business tries to minimise the opportunity cost and gets the best value for money for these types of activities.

Front 29

What are the advantages of ZBB?

Back 29

- the allocation of resources should be improved

- a questioning attitude is developed which will help to reduce unneccesary costs and eliminate insuffcient practices.

- staff motivation might improve because evaluation skills are practised and a greater knowledge of firms operations might develop.

- it encourages manager to look for alternatives

Front 30

What are the disadvantages of ZBB?

Back 30

- time consuming as budegting involves collection and analysis so decisions can be made

- skillful decision making is required and decisions could be subjective to opinion

- threatens status quo and could affect motivation.

- managers may not be perpared to justify spending on certain costs so may not be allocated effciently.

Front 31

What is budgetry control used for?

Back 31

To look into the future

Front 32

What are the stages in budgetry control?

Back 32

Front 33

What is preparation of plan?

Back 33

All businesses have business objectives. Targets are usually set to see if they will meet these objectives.

Front 34

What is comparison of plans with actual results?

Back 34

- the financial period is diveded into quarters.

- Each quarter will have a budget assigned to it.

- at the end of a quarter a comparison is made of actual against the target set in the budget or control.

- this determines the variance ( the difference between the actual and the budget)

Front 35

What is analysis of vairances?

Back 35

- The most important stage of the process.

- this involves finding the reasons for the difference between the budget and the actual.

- it can be the results of internal or external factors.

- in future amendments to the budget will need to accomodate the reason for the variance

Front 36

What is a variance?

Back 36

- Is the difference between the figure that the business has budgeted for and actual.

- usually calculated at the end of the budgetary period when the actual figure is known.

Front 37

What is formula for for variance?

Back 37

Actual - budget

Front 38

What can variances be?

Back 38

Favourable

Adverse

Front 39

What is favourable variances?

Back 39

When the actual figures were better than budget .

Front 40

What is adverse variances?

Back 40

When the actual figures were worse than the budget.

Front 41

What is favourable income?

Back 41

When the monthly sales revenue actually made is higher than the budgeted sales revenue.

Front 42

What is favourable expenditures?

Back 42

When the monthly costs budgeted are lower than the actual costs

Front 43

What is adverse income?

Back 43

When the amount of sales revenue budgeted is less than the actual sales revenue made.

Front 44

What is adverse expenditure?

Back 44

When costs monthly budgeted for is lower than the actual costs.

Front 45

For wages, overheads and raw materials which should be bigger budget or cost?

Back 45

Budget

Front 46

For sales volume and labour hours, which should be bigger budget or actual?

Back 46

Actual

Front 47

For profit which should be bigger budget or actual?

Back 47

Actual

Front 48

What are the reasons for changes income variances?

Back 48

- the ability to charge higher prices

- an increase in demand due to a marketing campaign

- improvements in the quality of the products

- an increase in consumer incomes

- a change in consumers tastes in favour of bamboo and wicker furniture.

Front 49

What are the reasons for changes in expenditure variances?

Back 49

- Costs might be higher due to production being higher

- suppliers may have raised prices

- there may be some ineffciencies in production

- wages may have been higher due to wages demands by workers.