USING BUDGETS

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  • 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
    • 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

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