USING BUDGETS
- Created by: Nadia
- Created on: 27-04-13 17:12
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- USING BUDGETS
- WHAT IS A BUDGET?
- A financial plan for the future. Concerning revenues and costs of a business.
- Expressed in money
- HOW ARE THEY USED?
- Establishes priorites
- Sets targets
- Provide directon
- Assign Responsibilites
- ControlRevenue and Costs
- Monitor Performance
- TWO MAIN APPROACHES
- HISTORICAL
- Use last years figures as basis for the budget
- Realistic - based on actual results
- However, circumstances may have changed. E.g new products/lost customers/economy
- Does not encourage efficiency
- Zerio-based
- Budgetedcosts and revenues are set to zero
- Budget bases on new proposals for sales and costs - built from the bottom
- More complicated and time consuming
- Potentially more realistic
- HISTORICAL
- WHAT ARE VARIANCES?
- A Variance arises when there is a difference between ACTUAL and BUDGETED figures
- FAVOURABLE
- Actual figures = better than budgeted
- Costs lower than expected
- Revenue/ profits = higher than expected
- ADVERSE
- Actual figure worse than budgeted
- Costs higher than expected
- Revenue/profits lower than expected
- LIMITATIONS
- Only as good as the data being used
- Can lead to inflexibility decision making
- Need to be changed as cirucumstances change
- Time consuming to complete and manage
- Can resultin short term decisions to keep wtithin the budget
- WHAT IS A BUDGET?
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