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?

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.