2.2.4 BUDGETS
- Created by: louisnetzler
- Created on: 03-04-19 09:20
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- BUDGETS
- A Financial Plan for the future
- Exert a degree of control over the costs of the business
- Variance Analysis
- Favourable
- Actual amount of money flowing into the business is more or where the actual amount of money flowing out of the business is less than the budgeted figure.
- Adverse
- Actual amount of money flowing into the business is less or where the actual amount of money flowing out of the business is more than the budgeted figure.
- Favourable
- Zero Budgeting
- Budget is set to zero for a given time-period, and the manager of the particular division or department then has to justify any expenditure which they wish to make
- Often used in an economic recession
- When money is not as readily available and the business wishes to make cutbacks
- Helps the business to identify those departments which require large amounts of essential capital and day-to-day expenditure.
- as well as identifying those departments which require minimal expenditure
- Can be time consuming
- Historical Figures
- Prepared using a previous period's budget or actual performance as a basis with incremental amounts added for the new budgetperiod.
- The allocation of resources is based upon allocations from the previous period
- This approach is not recommended as it fails to take into account changing circumstances
- Moreover it encourages "spending up to the budget" to ensure a reasonable allocation in the next period.
- Prepared using a previous period's budget or actual performance as a basis with incremental amounts added for the new budgetperiod.
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