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USING BUDGETS
WHAT IS A BUDGET?
A budget is a financial plan for the future.
It sets out financial targets for the business.
It helps the business to create a plan of action and aim over a given period
time expressed in numbers.…read more

Slide 3

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USING BUDGETS
SOME WAYS BUDGETS ARE USED...
Establish priorities and set for the business.
Provide direction.
Assign responsibilities.
Allocate resources.
Delegate without loss of control.
Motivate staff.
Monitor performance.
Control revenues and costs.
Communicate targets.…read more

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USING BUDGETS
APPORCHES TO BUDEGETING...
Historical Budgeting-
Using last year's figures as the basis for the budget.
Realistic.
BUT...
Factors may have changed (e.g. economy).
Doesn't encourage efficiency.
Zero-based Budgeting-
Budgets, costs and revenues are set at zero.
Can be more realistic.
BUT...…read more

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USING BUDGETS
WHAT ARE VARIANCES?
A variance is the difference between the actual and the budget figures.
FAVOURABLE-
Actual figures are better than the budgeted figures.
Costs Lower than expected.
Profits Higher than expected.
ADVERSE-
Actual figures are worse than the budgeted figures.
Costs Higher than expected.
Profits Lower than expected.…read more

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USING BUDGETS
DRAWBACKS AND LIMTIATIONS...
Are only good as the data being used.
Can lead to inflexibility in decision-making.
Need to be changed as circumstances change.
Take time to complete and manage (opportunity cost).
Can result in short term decisions to keep within the budget.…read more

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