SITXFIN003 Manage Finances Within a Budget - Short Answer

SITXFIN003 MANAGE FINANCES WITHIN A BUDGET – Short answer
ASSESSMENT B – SHORT ANSWER
INSTRUCTIONS
 You are to answer all questions.
 Read each question carefully. Ensure you have provided all required information.
 On completion, submit your assessment to your assessor.
SECTION 1: ALLOCATE BUDGET RESOURCES
Q1: What is a budget and how does it help a business achieve its goals?
 Definition
Is a detailed financial plan that shows estimated revenue and expenses for the given time
period.
 Purpose
A budget is both planning and performance evaluation tool. They are prepared prior to a
specific period to assist in the business’ s planning processes and allocation of funds with
business.
Q2: What determines how business funds are divided amongst different departments and
projects?
The following are some of the factors that need to be considered when deciding the apt amount
of the business funds to be allocated to each department:
The projected amounts of the sale for the budget period for that department
The direct amount of the costs of sales for that department
The fixed and the variable costs that would be incurred for that department
Q3: What is the difference between a fixed (static) and flexible (variable) budget?
Fixed (static) budgets- this budget is usually prepared at the start of a budget period for an area
or outlet, for specific goals, for areas which do not have a direct relation to production or sales.
Flexible (variable) budgets – allow for the adjustments based on changing conditions and can
show figures based on various scenarios.
Q4: What is a cash flow budget and what is it used for?
Cash flow budget is based on information from the sales and operational budgets and how
predicts the cash flow into and out of the business. This allows you to determine how much
cash or funds are available or must be outlaid during any given period.
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SITXFIN003 MANAGE FINANCES WITHIN A BUDGET – Short answer
Q5: What is a profit and loss budget and what is it used for?
Profit and Loss budget, also known as revenue or income budgets, are a forecast of what you
hope or anticipate your profit and loss statement will show at the end of that period. It indicates
your forecasted revenue and expenses for a specific period of time and shows whether you
might make or lose money at the end of the period.
Q6: What do the following terms mean?
 Financial viability
Means the business has generated enough income to pay all their liabilities and still make
a profit.
 Profitability
This is a business ability to achieve an adequate return from its assets to cover all
costs associated with operating the business. It shows the profit earned by the
business measured against the amount invested in assets.
 Liquidity
This refer to the availability of cash , or assets that can be quickly converted into cash,
and used to pay for the purchase of goods, services and capital assets.
Q7: What is a budget cycle?
It is the process which begins with the initial development of the budget and ends with the final
transaction in the budget period.
Q8: What must you do when budget priorities are changed? Explain why.
Priorities are determined by departmental goals and or the primary concerns of business
owners, shareholders or financial backers.
To manage budgets and allocate funds, you need to know that these priorities and how they
relate to the budgets.
Meet with all department leaders and orient them on the budgeting allocations in order for them
to know which areas and operations to prioritize.
Q9: Your budget allows only a limited amount of funding for wages. Who needs to know about
these types of resource decisions? Explain why.
Anyone who has impact on the budget needs to know wherever the budget is changed. This
includes staff who generate revenue or incur expenses as a result of their daily duties.
2016 Edition2

SITXFIN003 MANAGE FINANCES WITHIN A BUDGET – Short answer
Q10: List two ways you can promote awareness of the importance of budget control.
Hold a team meeting
Notice boards
Posters
Wall charts
Q11: How does promoting the importance of budget control help you achieve team or work area
goals?
The company can maximize its resources depending on the budget allocated for each
section of the operations at the same time it makes a more efficient workflow with the
proper budget distribution.
Q12: Why is it important to record resource allocation?
To track performance
To analyse efficiency and productivity
To manage cost and cash flow
To identify and rectify deviations
To report on opportunities for future improvements
Q13: Budgets are not the only source of information relating to where resources are allocated
and controlled within a business. List four other records used to show resource allocation.
Profit and loss or ( income ) statements
Balance sheets
Purchasing documentation
Payroll documentation
Bank account records
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