Business Budgeting: Variances, Forecasting and Analysis

What is a budget?

An estimate of income or expenditure for a set period of time.

What is a variance?

The difference between the actual amount and the budgeted amount.

What is a favourable variance?

When actual figures are better than budgeted amounts.

What is an adverse variance?

When actual figures are worse than budgeted amounts.

How can budgeting help with planning?

It allows businesses to anticipate expenses and identify potential financial problems.

What is the purpose of forecasting in budgeting?

To prepare projected profits and analyze margins based on sales history and expected future trading.

How does budgeting facilitate communication in a business?

It helps owners communicate financial objectives and requires departments to report on progress.

How can budgeting motivate employees?

Involving staff in budget setting can make them more cautious with spending, especially if tied to perks.

What is zero budgeting?

A budgeting method where all expenses must be justified from scratch, without historical assumptions.

What is historical budgeting?

A budget based on previous years' income and expenditure, which may not account for market changes.

What are flexible budgets?

Budgets that adjust based on changes in sales levels to avoid adverse variances.

What is the impact of a favourable income variance?

It indicates that actual income is greater than budgeted income, which is considered good.

What does a favourable expenditure variance indicate?

It shows that actual expenses are lower than budgeted expenses, which is also considered good.

What does an adverse income variance indicate?

It shows that actual income is less than budgeted income, which is considered bad.

What does an adverse expenditure variance indicate?

It shows that actual expenses are higher than budgeted expenses, which is considered bad.

What is the role of variance analysis in budgeting?

To analyze the differences between budgeted figures and actual figures to assess performance.

How often should a business review its budget?

Regularly, typically on a monthly basis, to ensure effective planning and control.

What is the significance of budgeted income calculations?

They help businesses project expected income and compare it with actual performance.

What is the significance of budgeted expenditure calculations?

They help businesses project expected expenses and compare them with actual performance.

What is the benefit of using sales forecasts in budgeting?

They help prepare projected profits and analyze key financial ratios like return on investment (ROI).

What is a budgeted expenditure example?

A calculation that estimates the expected costs for a specific period.

What is a budgeted income example?

A calculation that estimates the expected revenue for a specific period.

What are the learning intentions regarding budgeting?

To explain budgets, variances, calculate and analyze them, and evaluate their impact on businesses.

How does budgeting impact stakeholders?

It provides insights into financial health and helps stakeholders make informed decisions.