Benefits of using budgets
Drawbacks of using budgets
To provide direction and co ordination by ensuring that spending is geared towards the firms aims
If budgets are too ridged things could go wrong
To assign responsibility for the success or failure
Incorrect allocations a budget that is too generous may encourage inefficiency.
To motivate staff and set targets
A budget that is insufficient could demotivate staff
To improve efficiency by investigating reasons for failure and success
Poor communication could lead to non compliance
To encourage forward planning by studying possible outcomes
To establish priorities
What is budget control
Budgetary control is the establishment of the budget and the continuous comparison of actual and budgeted results in order to ascertain variances from the plan and to provide a basis for he revision of the objective or strategy.
Variance analysis
This represents the difference between the planned standard and the actual performance. If the variance shows a poor performance is known as an adverse or unfavourable variance. If it does better it is known as a favourable variance.
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