Understanding Budgeting and Variances

What is the definition of budgeting?

• A plan for future financial transactions over a given period of time, detailing expected expenditure and revenues.

• A method of saving money by reducing unnecessary expenses.

• A strategy for increasing sales revenue through marketing.

• A process of investing in stocks and bonds for future gains.

What is a sales revenue budget?

• A budget that outlines a business's planned expenditure on labour and raw materials.

• A budget that sets out a business's planned revenue from selling its products.

• A budget that focuses on reducing costs by finding cheaper suppliers.

• A budget that is used to allocate resources for marketing campaigns.

What is zero budgeting?

• A budgeting method where managers start with a clean sheet and justify all expenditures.

• A budgeting method that automatically increases the budget annually.

• A budgeting method that focuses on reducing all costs to zero.

• A budgeting method that only considers past expenditures.

Which of the following is an advantage of budgeting?

• It is time-consuming for managers in small businesses.

• It helps in the coordination of a business and improves communication.

• It can lead to poor decision-making if poorly constructed.

• It can cause resentment among personnel who have no part in constructing the budget.

Which of the following is a limitation of budgeting?

• It provides clear targets to be met.

• It can be time-consuming for managers in small businesses.

• It acts as a motivator for staff if the budget is met.

• It allows delegation without loss of control.

What is a favourable variance?

• When actual expenditure is higher than expected.

• When actual revenues are lower than expected.

• When actual expenditure is less than expected.

• When actual revenues are equal to expected revenues.

What is an adverse variance?

• When actual revenues are higher than expected.

• When actual expenditure is less than expected.

• When actual revenues are lower than expected.

• When actual expenditure is equal to expected expenditure.

Calculate the variance for sales revenue in JKP Ltd's budget.

• £430 favourable

• £430 adverse

• £220 favourable

• £220 adverse

Calculate the variance for the cost of sales in JKP Ltd's budget.

• £220 favourable

• £220 adverse

• £210 favourable

• £210 adverse

Calculate the variance for gross profit in JKP Ltd's budget.

• £210 favourable

• £210 adverse

• £430 favourable

• £430 adverse