Finance Budgeting Flashcards

Flashcards about Budgeting

Budgeting

Financial plans for the future over a given period of time that describes the expected levels of expenditure and revenues.

Sales Revenue Budgets

A business’ planned revenue from selling its products. Important information includes expected level of sales and the likely selling price of the product.

Expenditure Budgets

A business’ planned expenditure on labor, raw materials, fuel, and other items essential for production.

Zero Budgets

Involves managers starting with a clean sheet – they have to justify all expenditure made.

Budgeting Advantages

A means of controlling income and expenditure; Regulates spending and highlights losses; Allows for review and corrective action; Enables delegation with control; Improves coordination and communication; Provides clear targets; Can motivate staff.

Budgeting Limitations

Can be time-consuming; May cause resentment if personnel are not involved in construction; Can lose significance if actual figures differ greatly; Must not be too inflexible; Poorly constructed budgets can lead to poor decision making.

Favorable Variance

Exists when the difference between the actual and budgeted figures will result in higher profits than shown in the budget (e.g., expenditure is less than expected, revenues are higher than expected).

Adverse Variance

Occurs when the difference between the figures in the budget and the actual figures will lead to lower profits than planned (e.g., expenditure is higher than expected, revenues are lower than expected).

Variance

Any unplanned change from the budgeted figure. They occur when an actual figure for sales or expenditure differs from the budgeted figure.

Reasons for Changes in Variances

Economy in recession, competitor product, Raw material cost changes, cheaper suppliers, Improved Training, fewer employees.