2.2.4 Budgets

• What is budgeting?

  A financial planning tool
• Budgeting is a detailed financial plan that outlines expected revenues and expenditures
• What is the main purpose of budgeting in terms of planning?

  To set financial goals
• Coordination in budgeting ensures alignment across departments.
• One purpose of budgeting is control, which involves monitoring financial performance against the budget
• What is the role of motivation in budgeting?

  Encourage efficient resource use
• Flexible budgets are useful for managing variable costs.
• Fixed budgets remain constant regardless of the production
• Match the type of budget with its description:

  Flexible Budget ↔️ Adapts to changes in output volume

  Fixed Budget ↔️ Remains constant regardless of output
• What is the first step in the budgeting process?

  Setting objectives
• Preparing the budget involves considering both fixed and variable costs.
• Monitoring and control in budgeting involves identifying variances and taking corrective actions.
• Steps in the budgeting process:

  1️⃣ Setting Objectives

  2️⃣ Gathering Data

  3️⃣ Preparing the Budget

  4️⃣ Approval and Communication

  5️⃣ Monitoring and Control

  6️⃣ Revision
• What are the four key uses of budgets in business management?

  Planning, coordination, control, motivation
• Budgets help allocate resources effectively across different departments
• Budgets provide a benchmark for evaluating performance.
• How do budgets help in cost control?

  By setting financial limits
• Match the use of budgets with its description:

  Resource Allocation ↔️ Allocating resources across departments

  Performance Evaluation ↔️ Measuring actual performance against benchmarks

  Cost Control ↔️ Setting financial limits on expenditure
• What are the four main uses of budgets in business management?

  Planning, coordination, control, motivation
• Budgets provide a benchmark against which actual performance can be measured
• Budgets help in controlling costs by setting financial limits.
• Budgeting is a detailed financial plan that outlines expected revenues and expenditures
• What is the first purpose of budgeting according to the study material?

  Planning
• Budgets are used to monitor and manage financial performance against the budget.
• What is the fourth purpose of budgeting according to the study material?

  Motivation
• Match the type of budget with its description:

  Flexible Budget ↔️ Adjusts based on actual output levels

  Fixed Budget ↔️ Remains constant regardless of production
• What is the first step in the budgeting process?

  Setting objectives
• Steps in the budgeting process in order

  1️⃣ Setting Objectives

  2️⃣ Gathering Data

  3️⃣ Preparing the Budget

  4️⃣ Approval and Communication

  5️⃣ Monitoring and Control

  6️⃣ Revision
• When preparing a budget, both fixed and variable costs must be considered.
• What is the fifth step in the budgeting process?

  Monitoring and control
• Budgets are used for planning by setting out financial objectives and strategies
• Budgets ensure all departments align with overall financial goals.
• Match the use of budgets with its description:

  Coordination ↔️ Ensuring all departments align

  Motivation ↔️ Encouraging efficiency
• What is one limitation of budgets according to the study material?

  Inflexibility to changing conditions
• Preparing budgets is a time-consuming process
• Budgets rely on potentially inaccurate forecasts.
• Why might a company miss sales opportunities if it rigidly adheres to a marketing budget?

  Inflexibility to demand surges
• Budgeting limitations include inflexibility to changing conditions
• Match the budgeting advantage with its limitation:

  Provides clear financial plan ↔️ Inflexibility to changing conditions

  Facilitates resource allocation ↔️ Time-consuming preparation

  Supports performance evaluation ↔️ Relies on potentially inaccurate forecasts

  Enhances cost control ↔️ May stifle creativity and innovation
• Budgeting may stifle creativity and innovation due to its rigidity.