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Accounting Theory > Budgeting > Flashcards

Flashcards in Budgeting Deck (19)
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1
Q

Budget

A

Financial plan of expected revenue and/or expenditure for a defined period of time in the future.

2
Q

Budgetary control

A

comparison of budgeted figures

3
Q

Advantages of budgets

A
  • creates plan for future
  • recognises future problems
  • improves communication between colleagues and departments
  • motivates staff w/ goals and targets
4
Q

Types of budget

A
  1. Sales budget
  2. Production budget
  3. Labour budget
  4. Overhead budget
5
Q

Sales budget

A

Prepared by sales manager, forecasts sales

6
Q

Production budget

A

Prepared by production manager, determines the no. of finished goods that must be produced

7
Q

Labour budget

A

Prepared by production manager, forecasts labour hours

8
Q

Overhead budget

A

Prepared by production manager, forecasts variable and fixed indirect expenses

9
Q

Factors to consider when preparing a sales budget

A
  • last years sales
  • competition
  • state of economy
  • price to be charged
10
Q

Principal budget factor

A

Limits expansion by finding the largest extent of output

11
Q

Master budget

A

Summary of all budgets

12
Q

Cash budget

A

Forecasts expected inflows and outflows of cash for a period in the future, prepared by a financial accountant

13
Q

Advantages of preparing a cash budget

A

Knowing future cash deficits and surpluses will allow the business to know what to do with money in the future and if they will have enough for day-to-day spending

14
Q

Advice for a business when a cash shortage is foreseen

A
  • hire equipment over buying
  • negotiate lower prices from suppliers
  • change cr. terms, i.e. offer 6% discount for cash payments
  • examine wage bill and v. overheads and reduce in any way possible
15
Q

Flexible budget

A

Compares budgeted v actual costs at same level of activity

16
Q

Controllable costs

A

Costs that can be controlled by the manager, e.g. commission of sales staff

17
Q

Uncontrollable costs

A

Costs that the manager has no control over, e.g. rates to the local authority

18
Q

Adverse variance

A

When actual costs are greater than budgeted costs

19
Q

Favourable variance

A

When budgeted costs are greater than actual costs