As Business Studies Edexcel Budgeting efficiently

As Business Studies Edexcel Budgeting efficiently

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  • Created by: amy hill
  • Created on: 20-04-12 12:06
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How does a company budget efficiently?
To understand budgeting
Explore the concept of `zero based' budgeting
Recognise the importance of `historical' data
Why bother?
So no department runs out of money
Provides a `yardstick' from which management can judge the success of specific
Budget and hierarchy
Directors-agree a master budget which is divided amongst the entire firm
Regional managers- Allocated money to split across departments
Branch managers- Divide the money between the branches
Section managers-Use money to buy in supply ect
Shop floor workers-to help meet budget targets
3 types of budget
Income budget- a target for the amount of money a firm hopes to make in one year
Expenditure budget- sets a maximum target for costs
Profit budget- the higher the income budget and the lower the expenditure budget the
higher the profit
Setting the budget
For start-ups this will be a much tougher job, the proprietor must rely on:
A `guesstimate' of likely sales in the first month
Likely success based on the people in the firm
Market research
Zero budgeting
Essentially every budget is at zero
Each and every department must justify every pound in their budget and how it is going to
be spent. This will be done in a business proposal
The downside to this is that if you need to extend your budget this can be difficult and can
lead to wasted time
Problems with setting budgets

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Greed- People will take more than they need given an opportunity
All managers are going to want the highest budget as it means they can work more
Bosses want to keep budgets as low as possible
Nobody knows what the `right' figure is
Main problems are managers being inexperienced and giving too much/too less
And senior managers being too arrogant and not listening to the requirements of other
Variable Budget for costs Actual sales/profit Variance
Sales of X 150 160 10 Favourable
Sales…read more


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