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.
* Direction and Co-ordination
* Improve efficency
* They asses forcasting ability
Drawbacks of using budgets
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
Features of 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
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