2.2.4 BUDGETS

View mindmap
  • 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.
    • 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.

Comments

No comments have yet been made

Similar Business Studies resources:

See all Business Studies resources »See all Financial Planning resources »