Budget - an agreed plan establishing, in numerical or financial terms, the policy to be pursued and the anticipated outcomes of that policy.
Benefits:
* Direction and Co-ordination
* Motivation
* Improve efficency
* They asses forcasting ability
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Drawbacks of using budgets
Drawbacks:
They are difficult to monitor fairly
Allocations may be incorrect
*Savings may ne sought that are mot in the intrests of the firm
*Changes may not be allowed for wen a budget is reviewed
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Features of Good Budgeting
Good Budgeting:
* Consistent with aims of the business
*be based on the opinions of as many people as possible
*set challenging realistic targets
*Monitored at regular intervals
*be flexible
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Smart Target
SPECIFIC
MEASURABLE
AGREED
REALISTIC
TIMED
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Variance Analysis
Variance analysis - the process by which the outcomes of busgers are examined then compared with the budgeted figures. The reasons for any differences are then found.
Favourable variance - when costs are lower than expected or revenue is higher than expected.
Adverse variance-when costs are higher than expected or revenue is lower than expected
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