First 273 words of the document:
In this chapter it looks at how budgets are used to help an organisation to become more efficient.
Budget An agreed plan establishing, in numerical or financial terms, the policy to be pursed and the
anticipated outcomes of that policy.
Benefits of using budgets
They provide direction and coordination
They motivate staff
They improve efficiency
They assess forecasting ability
Drawbacks of using budgets
They are difficult to monitor fairly
Allocations may be incorrect
Saving may be sought that are not in the interest of the firm
Changes may not be allowed for when a budget is reviewed
Features of good budgeting
Be consistent with the aims of the business
Be based on opinions of as many people as possible
Set challenging but realistic targets
Be monitored on regular intervals
Variance analysis the process by which the outcomes of budgets are examined and then
compared with budgeted figures. The reasons for any differences (variances) are then found.
Favourable variance is when costs are lower than expected, or the revenue is higher than
expected. (More profit than expected)
Adverse (unfavourable) variance is when costs are higher than expected, or revenue is lower
than expected. (Less profit than expected)
For variance analysis, you should use F for favourable and A for adverse instead of negative and
Zero budgeting There is no set amount of budget.
Income budget rev enue budget sales budget
Expenditure budget cost budget