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Benefits of using budgets
1. Controlling finances
Using a budget can control your finances such as expenditure for
example by allocating a budget to a department they are able to
work towards meeting the budget and employees are given a
responsibility to meet to the objective. It can also allow more
money to be allocated to a problem. This can also increase staff
performance as they respond well to being given a responsibility.
Drawbacks of using budgets
1. Conflicts can arise in two main ways
Departments may conflict with each other for a larger slice of the
budget therefore this can create problems within the business
such as employees getting unfair proportions of the budget.
As well as a strong manager may gain a larger cut of the business
therefore have an increase in the budget.
Variance is the difference between the budgeted figure and the
actual figure that is achieved.
Variance analysis is the comparison of an organisation of its actual
performance with expected budget over a time period.
Where a business makes higher profits than expected on their
Adverse variance is the opposite of the favourable it is whats
lower than the budgeted figure and a loss in profits.
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CAUSE OF FAVOURABLE VARIANCES
A cause of a favourable variance is that competitors have bad
publicity over their products, therefore boosts sales above
Lower interest rates therefore a rise in sales.
CAUSE OF ADVERSE VARIANCES
Competitors are offering special price deals therefore
customers are inclined to buy on deals rather than your
Rent is on the increase therefore losing out on money coming
in as profit as there is more outgoings.…read more