Finance

• What is the definition of budgeting?

  Financial plans for future expenditure and revenues
• What do sales revenue budgets outline?

  Planned revenue from selling products
• What important information is included in sales revenue budgets?

  Expected level of sales and selling price
• What do expenditure budgets detail?

  Planned expenditure on essential production items
• What is the definition of zero budgets?

  Managers justify all expenditure made
• What are the benefits of zero budgeting?

  • Improves control
  • Helps with resource allocation
  • Limits unjustified budget increases
  • Reduces unnecessary costs
  • Motivates managers to explore alternatives
• What are the advantages of budgeting?

  • Controls income and expenditure
  • Regulates spending and highlights inefficiencies
  • Allows for corrective actions
  • Enables delegation without losing control
  • Improves business coordination and communication
  • Provides clear targets for employees
  • Can motivate staff if budgets are met
• What are the limitations of budgeting?

  • Time-consuming for small business managers
  • Personnel may resent imposed targets
  • Actual figures differing from budgets can reduce significance
  • Budgets must remain flexible to seize opportunities
  • Poorly constructed budgets lead to bad decisions
• What is a favourable variance?

  Higher profits than shown in the budget
• What is an adverse variance?

  Lower profits than planned in the budget
• When was JKP Ltd founded?

  In 1974
• Who runs JKP Ltd today?

  Peregrine, son of the founder
• How do you calculate the variance for sales revenue?

  Actual sales revenue - Budgeted sales revenue
• What is the variance for JKP Ltd's sales revenue?

  £430 adverse
• What is the variance for JKP Ltd's cost of sales?

  £220 favourable
• What is the variance for JKP Ltd's gross profit?

  £210 adverse
• What are reasons for changes in variances?

  • Economy in recession, less spending
  • Competitor introduces a new product
  • Raw material costs may have fallen
  • New/cheaper suppliers found
  • Better-trained/motivated employees
  • Fewer employees producing the same output
• What is the definition of a variance?

  Unplanned change from the budgeted figure
• What types of variances can occur?

  Favourable (F) or adverse (A)
• What is essential for businesses to survive?

  Finance
• What is working capital used for?

  Day-to-day running of the business
• What does investment capital help a business do?

  Grow
• What is capital expenditure needed for?

  Investing in fixed assets
• What factors determine the most suitable finance option for a business?

  Funding amount, duration, and purpose
• What are internal sources of finance?

  Money generated from within the business
• What is a disadvantage of using retained profit?

  Money is tied up in the business
• How can working capital be improved?

  By reducing trade credit periods
• What is a potential risk of reducing stock holdings?

  It may drive customers away
• What can established businesses do with unwanted assets?

  Sell them off
• What is a bank loan?

  Borrowing a fixed amount for a fixed period
• What is an advantage of a bank loan?

  Funds become immediately available
• What is a disadvantage of a bank loan?

  Interest must be paid on the loan
• What is an overdraft?

  Withdrawing more than the account balance
• What is an advantage of an overdraft?

  Only pay interest when overdrawn
• What is a disadvantage of an overdraft?

  Interest charged can be very high
• What is trade credit?

  Buying items and paying later
• What is an advantage of trade credit?

  It is an interest-free way to raise finance
• What is factoring?

  Turning invoices into cash
• What is an advantage of factoring?

  Flexible finance linked to company turnover
• What is leasing?

  Using an asset without owning it