Chapter 16, AQA Buss2

Benefits of Using Budgets

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

VARIANCE = BUDGET FIGURE - ACTUAL FIGURE

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