Budgeting

• What is a budget?

  A financial plan for the future
• How is a budget different from a forecast?

  A budget is a financial plan, not a forecast
• How much money will I need next week according to my budget?

  £20
• What is the basis for the budget I set for next week?

  My allowed spending on lunch
• What are the two main components of a budget?

  Expenses and income
• Who is responsible for the budget mentioned in the material?

  Only myself
• What are the weekly expenses mentioned in the budget?

  Food and travel
• How much is allocated for food in the budget?

  £20
• What is the cost of travel in the budget?

  Free
• What are the purposes of budgets?

  • Control and monitoring spending
  • Motivation to maintain financial responsibility
• What are the types of budgets mentioned?

  1. Revenue budgets

  • P1 sales budget
  • P2 sales budget
  • P3 sales budget

  1. Expenditure budgets

  • Cost of labour
  • Cost of materials
  • Cost of promotion
• What is a zero-based budget?

  A budget where all spending is justified
• What is a benefit of zero-based budgets?

  Helps to minimize costs
• What is a disadvantage of zero-based budgets?

  It can be time-consuming
• What can affect budgets according to the material?

  External factors
• What is variance analysis?

  It compares budget figures with actual figures
• What does a favorable variance indicate?

  Targets have been met
• What does an adverse variance indicate?

  Targets have not been met
• What can be investigated when a variance occurs?

  • Whether external factors influenced the variance
  • Whether peer budgeting affected the results
• What were the budgeted revenue and actual revenue for 2019?

  Budgeted: 100 million, Actual: 110 million
• What were the budgeted expenses and actual expenses for 2019?

  Budgeted: 50 million, Actual: 80 million
• What is the variance for revenue in 2019?

  10 million favorable
• What is the variance for expenses in 2019?

  30 million adverse
• Why is it important to investigate variances?

  To understand causes of budget discrepancies