BUSS2 - Using Budgets & Variance

Budgets, income budgets, profit budgets, benefits of using budgets, drawbacks of using budgets, what good budgets consist of.

Variance, adverse variance, favourable variance, possible causes of variance, using variance analysis to inform decision making and response.

Issues for evaluation.

HideShow resource information
  • Created by: Flo
  • Created on: 04-02-13 22:31
Preview of BUSS2 - Using Budgets & Variance

First 358 words of the document:

Buss2 Finance Using Budgets
Budgets: targets for cost or revenue that a firm or department must aim to reach over a given period
of time.
Income budgets: targets set for the amount of revenue (income) to be achieved in a set period of
Expenditure budgets: limits set for the amount of money that can be spent (expenditure) in a set
period of time
Profit budgets: targets set for the amount of profit (income in excess of expenditure) to be achieved
in a set period of time
Benefits of using budgets
Provides direction and coordination for the whole business
Ensures that spending and sales are linked to corporate objectives
Helps workforce understand objectives and focus on the same aims
Motivates staff through delegation of responsibility/ empowerment
Improves efficiency by monitoring and reviewing them to improve standards
Useful planning tool to help set realistic objectives and plan for the future
Cost budgets help to avoid overspending
Drawbacks of using budgets
Difficult to monitor fairly ­ reasons for any variances are relied on the truth of explanations
by managers
Restrictive as it doesn't take into account any unforeseen changes and is only a prediction
which could be wrong
o Budget allocations could be incorrect and if managers aren't given enough money
opportunities could be missed
Demotivating if budgets are imposed on managers without consultation or input
o This can cause conflict within managers and be Demotivating
Inexperienced managers may not know enough about the department to put together a
Budget holders may take actions in order to meet budget targets that may not be in line with
the business objectives
Time consuming and hard to monitor
Good budgets are
Consistent with the overall objectives of the business
Based on input from as many people as possible
Challenging but realistic
Monitored regularly
Flexible ­ takes into account changes in circumstances
Variance: the difference between the budgeted figure and the actual result

Other pages in this set

Page 2

Preview of page 2

Here's a taster:

Buss2 Finance Using Budgets
Adverse variance: bad for the business as it leads to less profit for the business than expected so
costs are higher or sales are lower than expected
May show inefficiency
Favourable variance: good for the business as it leads to more profit for the business than expected
so costs are lower and sales higher than expected
May show efficiency
Possible causes of variances
Action of competitors
o Lower prices
o Introduce a new product
o Close a store
Action of suppliers…read more


No comments have yet been made

Similar Business Studies resources:

See all Business Studies resources »See all resources »