budgets
- Created by: Parabhjeet
- Created on: 20-02-13 20:03
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- Budgets
- 3 types
- Analysing profit budgets:
- profits below budget can be a cause for concern
- can be cause by excess expenditure
- could be that the business isnt reaching revenue targets
- Analysing budgeted and actual expendtiture
- Informs how successful the business is at controlling costs
- If one area of the business is constantly overspending then the managaer might want to take action but possibly setting lower budgets
- But if the budget fails to meet its budgets regularly it may be because the budgets are too low to be achieved
- Analysing sales revenue.
- If a business fails to meet it's sales target they might want to check why.
- Prices may be too high
- not targeting the correct market segment
- not advertising sufficiently
- Analysing profit budgets:
- Variance Analysis
- occurs when an actual figure for sales and expenditure differs from budgeted
- way of monitoring budgets
- 2 types
- Adverse
- When the difference between the figures: budgeted and actual figures will lead the firms profit being lower than planned.
- examples
- budgeted sales higher than sales revenue
- raw materials exceeding budgeted figure
- overheads turned out to be higher than budgeted
- Sales revenue below budgeted firgure
- Adverse variance causes
- Government increases business rates by unexpected amount
- fuel prices increase as price of oil rises
- competitors introduce new products winning extra sales
- Favourable
- Differences between budgeted and actual figures result in higher profits for the business
- Example
- expenses on fuel less than budget
- Actual wages less than budgeted
- Adverse
- Adverse sales revenue - sales revenue less than planned
- product range update or extend as apporpriate
- seek new markets - at home or overseas
- improve company image - PR donaltions to charities
- increase advertising and/or promotions
- cut wages or increase productivity- increase amount produced per wroker per hour
- cut prices- if consumer demand is sensitive to price changes
- Adverse production (cost) variance - expenditure higher than planned
- seek cheaper raw materials - purchasein bulk or overseas.
- reduce waste- use fewer raw material and produce fewer faulty goods
- 3 types
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