Budgets

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  • Created by: konradeke
  • Created on: 30-03-16 15:19
What is a budget?
A forecast or plan for the future finance of a business
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What is an Income budget?
A target set for the amount of revenue to be acheived in a set time period
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What is an expenditure budget?
A limit placed on the amount to be spent in a given period of time
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What is a profit budget?
A target set for the surplus between income and expenditure in a given period of time
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What is the process of setting budgets?
Set clear objectives -> Carry out market research -> Produce a sales forecast -> Set income budget -> Set expenditure budget -> Set profit budget -> Set divisional targets -> Review against objective -> Set clear objectives
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What are the problems with setting budgets?
Dependant upon predictions and forecasts, Costs are subject to change, Actions of competitors are unknown, Managers may lack experience, May be subject to bias, Take time and effort which itself has an opportunity cost
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What is Adverse variance?
Variance which is bad for the business
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What is favourable variance?
Variance which is good for the business
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What are some possible causes of variances?
Actions of competitors, Internal inefficiency, Action of suppliers, Changes in the economy and Internal decision making
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What are the advantages of setting budgets?
Provides a quantifiable target against which actual outcomes can be measured, informs decision making, Motivates budget holders due to increased responsibility
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What are the disadvantages of setting budgets?
Potential for conflict, May be restrictive, Time consuming to set and monitor
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Other cards in this set

Card 2

Front

What is an Income budget?

Back

A target set for the amount of revenue to be acheived in a set time period

Card 3

Front

What is an expenditure budget?

Back

Preview of the front of card 3

Card 4

Front

What is a profit budget?

Back

Preview of the front of card 4

Card 5

Front

What is the process of setting budgets?

Back

Preview of the front of card 5
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