3.5.2 Setting Budgets

What is a budget primarily used for in a business context?

• To forecast future earnings and spending

• To hire new employees

• To design marketing campaigns

• To set product prices

Which type of budget predicts the total costs for a business, including both fixed and variable costs?

• Income budget

• Expenditure budget

• Profit budget

• Marketing budget

What does the profit budget use to calculate the expected profit or loss for the year?

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Who is responsible for spending or generating the money for each budget in a business?

• Budget holders

• Marketing team

• Sales department

• Financial advisors

What is the purpose of variance analysis in the budget setting process?

• To predict future sales

• To check performance against the budget

• To allocate resources to departments

• To set marketing objectives

Which of the following is a benefit of budgeting?

• It can cause resentment and rivalry

• It helps to achieve targets

• It is time-consuming

• It can be restrictive

Which of the following is a drawback of budgeting?

• It helps control income and expenditure

• It allows departments to coordinate spending

• It can be restrictive

• It helps managers to review their activities

What is zero-based budgeting?

• A) A budgeting method where the budget is based on a percentage increase or decrease from last year's budget.

• B) A budgeting method where budget holders start with a budget of £0 and have to justify all expenses.

• C) A budgeting method that is quick and simple but assumes business conditions stay unchanged.

• D) A budgeting method that provides discipline and certainty.

Which of the following is a characteristic of historical budgeting?

• A) It starts with a budget of £0.

• B) It requires approval to spend money on activities.

• C) It is based on a percentage increase or decrease from last year's budget.

• D) It takes longer to complete than zero-based budgeting.

What is one advantage of fixed budgets?

• A) They provide more flexibility than historical budgeting.

• B) They allow budgets to be altered in response to significant changes in the market.

• C) They provide discipline and certainty.

• D) They take longer to complete than zero-based budgeting.