4775275
Description
Flashcards by Charlotte Summerly, updated more than 1 year ago
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Created by Charlotte Summerly
about 8 years ago
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| Question | Answer |
| What is budgeting? | A financial plan for the future concerning the revenue and costs of a business Allocating finance to a particular project/task |
| Purpose of budgeting | - ensuring a business does not overspend - costs don't go out of control - make efficient plans |
| Sales volume budgets | based on planned sales |
| Production cost budget | planned production costs |
| Sales revenue budget | considers sales figures |
| Expenditure budgets | Considers total costs |
| Profit budgets | Considers expected profits |
| Flexible budgets | changing business conditions |
| Operating budgets | daily operations in the business |
| How to decide on a budget | - objectives - competitor spending - sales revenue |
| Historical budgeting | - previous figures to make future plans - consider factors such as inflation, trends and future events |
| Zero-based budgeting | - no budget is allocated - spending with caution - show benefits of spending certain amounts of money - help to minimise un-necessary purchases - try and minimise opportunity costs |
| Benefits of zero based budgeting | - can always be efficient in decision making - allocation of resources could be improved - more for their money - more likely to evaluate amount of money being spent |
| Limitations of zero based budgeting | - time consuming - may not have a good initiative - could overspend if responsibility is given to wrong person - decisions can be influenced by opinions |
| Benefits of budgeting | - indicates priorities - provides direction - assigns responsibility - improve efficiency |
| Limitations of budgeting | - external factors such as changes in organisations - poor communication - changes may not be allowed in the budget which could cause conflict - only think about short term instead of both |
| What is variance analysis? | It represents the difference between the budget and the actual performance/spending |
| Variance formula | budget figure - actual spending |
| Favourable variances | - exists when actual figures are less than planned and are gaining profits E.G - wages less than budgeted, fuels costs are less |
| Adverse variances | - when actual figures are more than planned and are gaining a loss EG - raw materials are more, overheads are more |
| What are the causes of favourable variances? | - wages rise lower than expected - economic boom leads to higher sales - imported goods are cheaper |
| What are the causes of adverse variances? | - competitors gain more sales - government increases business rates - fuel prices increases |
| External factors | - competitor behaviour affects demand - change in economy - cost of raw materials increase |
| Internal factors | - improving efficiency - overestimating - changes in prices |
| How is variance analysis used? | - to plan ahead - re-motivate staff - change marketing mix - change product - lower sales price - find cheaper suppliers |
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