Term
Primary Purpose of a Budget
What is the primary purpose of a budget?
Answer
Explanation
To predict income and expenditure over a period for financial planning.
A budget is a financial plan predicting income and expenditure over a period. Budgets are vital for these core functions:
Variance analysis compares budgeted to actual figures to reveal differences. Understanding variances helps managers take corrective action or revise plans accordingly.
What is the primary purpose of a budget?
To predict income and expenditure over a period for financial planning.
How does budgeting help in resource allocation?
By distributing funds to departments or projects based on priorities.
What role does budgeting play in coordinating company activities?
It aligns activities across departments to achieve company goals.
How does budgeting contribute to controlling finances?
By comparing actual performance against budgets to manage expenses and revenues.
In what way does budgeting motivate employees?
By setting targets that encourage efficiency and accountability.
What is variance analysis in budgeting?
It compares budgeted figures to actual figures to identify differences.
What is a favourable variance?
When actual income is higher or costs are lower than budgeted.
What does an adverse variance indicate?
When actual income is lower or costs are higher than budgeted, signaling issues.
Why is variance analysis important?
It helps managers take corrective action or revise plans based on performance.