3.9 Budgeting
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22 Terms
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Profit centre
________: section of a business to which both costs and revenues can be allocated.
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Adverse variance
________ exists when the difference between the budgeted and actual figures leads to a lower than expected profit.
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Variance analysis
________: process of investigating any differences between budgeted figures and actual figures.
4
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Favorable variance
________ exists when the difference between the budgeted and actual figures leads to a higher than expected profit.
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Budget
detailed financial plan for the future
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Delegated budgets
control over budgets is given to less senior management
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Incremental budgeting
uses last years budget as a basis and an adjustment is made for the coming year
8
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Zero budgeting
setting budgets to zero each year and budget holders have to argue their case to receive any finance
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Cost centre
section a of a business, such as a department, to which costs can be allocated or charged
10
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Profit centre
section of a business to which both costs and revenues can be allocated
11
New cards
Variance analysis
process of investigating any differences between budgeted figures and actual figures
12
New cards
Budget
Detailed financial plan for the future
13
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Planning; effective allocation of resources; setting targets to be achieved; coordination; monitoring and controlling; modifying; assessing performance
7 benefits of setting budgets
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Delegated budgets
Control over budgets is given to less senior management
15
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Incremental budgeting
Incremental budgeting uses last year's budget as a basis and an adjustment is made for the coming year
16
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Zero budgeting
Setting budgets to zero each year and budget holders have to argue their case to receive any finance
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Lack of flexibility; too focused on the short term; lead to unnecessary spending; training needs must be met; revised budgets may need to be set for new projects
5 potential limitations of budgets
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Cost centre
Section of a business, such as a department, to which costs can be allocated or charged
19
New cards
Profit centre
Section of a business to which both costs and revenues can be allocated
20
New cards
Variance analysis
Process of investigating any differences between budgeted figures and actual figures
21
New cards
Favorable variance
Favorable variance exists when the difference between the budgeted and actual figures leads to a higher than expected profit
22
New cards
Adverse variance
Adverse variance exists when the difference between the budgeted and actual figures leads to a lower than expected profit