Budgeting

HideShow resource information
  • Created by: _Holly98
  • Created on: 22-02-16 19:48

TYPES OF BUDGETS

REVENUE / EARNING: EXPECTED REVENUE SELLING PRODUCTS - LEVEL SALES & SELLING PRICE. HARD NEW BUSINESS PREDICT LOW

EXPENDITURE: LABOUR, RAW MATERIALS ETC. ESSENTIAL PRODUCTION. SET OUT MONTHLY BASIS

PROFIT: COMBINING SALES REVENUE & EXPENDITURE POSSIBLE CALCULATE EXPECTED PROFITS. IMPORTANT FOR MANAGERS

1 of 8

SOURCES INFORMATION

PREVIOUS TRADING RECORD - BASE REVENUE & EXPENDITURE FIGURES

TRADED PAST RECORD BASE OUTCOME PREVIOUS YEARS - MANAGERS PREDICT TREND SALES GREATER ACCURACY 

RELY MARKET RESEARCH - MARKETS SUBJECT CHANGE

FASHION SHORT PRODUCT LIFE CYCLE - DEVELOPMENTS TECHNOLOGY MADE IT EASIER ANALYSE DATA RELATING CUSTOMERS NEEDS

GOVERNMENT OPERATE WEBSITE PROVIDE BUSINESS INFO

2 of 8

DIFFICULTIES CONSTRUCTING BUDGET

FORECAST SALES ACCURACY: HIGHLY DEPENDANT RESEARCH SETTING BUDGET. RESEARCH INACCURATE = SALES FORECAST BAD. CHANGES OCCUR RAPIDLY - HARDER ACCURATE

UNEXPECTED CHANGES: UNFORSEEN RISE COST E.G. OIL ROSE APRIL - JUNE 2014. ALTER COSTS COMPONENTS SERVICES. INCREAS EXPENSE ABOVE BUDGET

GOVERNMENT: JAN 2010 INCREASE VAT - INCREASE COST. TIMING EXTENT CHANGE UNCERTAIN AFFECT EXPENDITURE BUDGETS & REVENUE BUDGETS

3 of 8

WHY BOTHER ANALYSING

BUDGET & ACTUAL SPENDING: PROVDES INFO SUCCES BUSINESS CONTROLLING COSTS. MANAGERS JUDGE ABILITY AREAS BUSINESS. ONE AREA OVERSPENDING REDUCE SPENDING - INCREASE PROFIT

REVENUE DATA: FAIL MEET REVENUE NEED KNOW WHY E.G. PRICE TOO HIGH COMPARED COMPETITORS - USE INFO DECISION IMPROVEMENT 

PROFIT BUDGET: PROFIT BELOW BUDGET CONCERN - CAUSE EXCESS EXPENDITURE REVENUE FALLING BELOW EXPECTATIONS

4 of 8

CAUSES VARIANCES

FAVOURABLE

  • WAGE RISE LOWER EXPECTED
  • ECONOMIC BOOM - MORE SALES
  • RISING VALUE POUND - CHEAPER IMPORT MATERIALS

ADVERSE

  • COMPETITORS INTRODUCE NEW PRODUCT
  • GOVERNMENT INCREASE BUSINESS RATES
  • FUEL PRICES INCREASE
5 of 8

RESPONDING ADVERSE VARIANCE

ADVERSE SALES

  • IMPROVE COMPANY IMAGE - DONATE CHARITY
  • CUT PRICES: CONSUMER SENSITIVE PRICE CHANGE 
  • SEEK NEW MARKET
  • PRODUCT RANGE
  • INCREASE ADVERTISEMENT

ADVERSE PRODUCTION

  • CUT WAGES / INCREASE LABOUR PRODUCTIVITY
  • SEEK CHEAPER RAW MATERIALS 
  • REDUCE WASTE
6 of 8

USES

CONTROL FINANCE EFFECTIVLEY - ENABLE MANAGER INFORMED / FOCUSED DECISION IMPROVE PEFROMANCE

PRODUCT / EXPENDITURE - BUSINESS WONT OVERSPEND 

SENIOR MANAGEMENT DIRECT EXTRA FUNDS IMPORTANT AREAS BUSINESS

MOTIVATE STAFF - GAIN SATISFACTION LEAD MOTIVATION - PERFORMANCE MAY IMPROVE

TARGETS - MOTIVATE IMPROVE PERFORMANCE - INCREASE REVENUE

7 of 8

LIMITATIONS

TRAINING REQUIRED - EXPENSIVE. TEETHING PROBLEMS E.G. ERRORS DELAYS AS EMPLOYEES ADJUST 

ALLOCATING BUDGETS FAIRLY - MANAGERS GOOD NEGOTIATION - WORTHY AREAS NOT GET AS MUCH NEEDED

RELATE CURRENT FINANCIAL YEAR - NOT BEST DECISION LONG RUN E.G. REDUCE WORKFORCE LEAD COMPETITORS GAIN MORE MARKET AS PRODUCE MORE SUFFIENCTLY 

8 of 8

Comments

No comments have yet been made

Similar Business resources:

See all Business resources »See all Budgeting resources »