Business A Level - Paper 2 Questions And Answers

What is a budget? - - Financial plan - Yearly - Looks at revenue, costs and profits What are the uses of budgets? - - Control income and expenditure/forecast - Establish priorities and set targets - Monitor performance within business - Increase motivation within employees Drawbacks of budgeting (forecasting) - - Hard to predict sales and revenue if business is in a dynamic market - Start-up businesses = not enough data for accurate results - Difficult to predict competitors/external changes which can have an influence on revenue/sales Drawbacks of budgeting (costs) - - Always likely to be unpredicted costs - Changes in external environment = impact costs e.g. interest rates rising, exchange rates and taxes. What is budget variances? - - Calculating and investigating the difference between actual results of budgets. - Variances can either be FAVOURABLE or ADVERSE What is a favourable variance? - - When the actual figures are better than the predicted budgeting figures - Strong demand = increase in expected revenue - Selling prices increased = potential increase in revenue if product demand is inelastic What is an adverse variation? - - When the actual figures are worse than the predicted budgeting figures - Unexpected rise in costs - Over-spending by budget figures - Over-optimistic sales forecasting What is an income statement (Profit and Loss Account) - Measures a business' performance over a given period of time, usually a year How can a business improve profitability? - - Raising prices as costs remain the same, should increase profits - Lowering costs e.g. sourcing cheaper resources, like raw materials or cheap labour - Using resources more efficiently e.g. new machinery/technology