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Budgeting


Purpose of Budgeting

A budget is simply a financial plan for the forthcoming year, that is drawn up to help a business
achieve its objectives.

Budgets are often used to exert a degree of control over the costs of the business, in an attempt to
achieve gains in efficiency.…

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3. Setting unrealistic and unachievable budgets.
4. Sticking rigidly to the budget, (i.e. forgetting the fact that it is only a plan and a guide for the
next year, and consequently it can be changed accordingly).

Variance Analysis

It is vital that a business regularly reviews and revises its budgets.…

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This is a variance of £ 20,000 (or 10% of the budgeted figure). This is an unfavourable or adverse
variance (A), because it results in the business spending more money than it budgeted for.
Similarly, the business budgeted to spend £ 100,000 on its labour costs (wages and salaries). It…

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