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A budget is a financial plan for the future concerning the
revenues and costs of a business over a given period of
Why are budgets used:
- Establish priorities and sets out targets
- Provides 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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Historical budgeting:
- Using last years figures as a basis for the budget
- Realist and based on actual results
- Circumstances may have changed
- Doesn't encourage efficiency
Zero-Based Budgeting
- Budgeting costs and revenues are set to zero.
- Budget is based on new proposals for sales and costs
- More time consuming and more complicated
- Potentially more realistic…read more

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A variance arises when there is a difference between actual
and budget figures.
Favourable Variances
- Actual figures are better than budgeted
- Costs lower than expected
- Sales higher than expected
Adverse Variances
- Actual figure is worse than budgeted figure
- Costs are higher than expected
- Revenue is lower than expected…read more

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Drawbacks and limitations of budgeting:
- Are only as good as the data being used
- Can lead to inflexibility in decision making
- Need to be changed as circumstances change
- Takes time to complete and manage
- Can result in short term decisions to keep within the budget…read more

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Profit is financial gain, esp. the difference between the
amount earned and the amount spent in buying, operating,
or producing something.
Why businesses should increase profits:
- Earn better returns for investors
- Stop the business from suffering losses
- Improve internal sources of finance
- Provides a better return on investment
Ways to increase profit:
Sales Increase quantity or raise selling price
Less Variable Costs Reduce variable cost per unit
Less fixed Costs Increase output (economies of scale)
Net Profit Reduce overheads…read more

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