Using budgets
- Created by: amina bibi
- Created on: 09-03-13 19:40
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Using Budgets
Budgetary Control aka Budgeting
- involves a business using its budgets to look into the future, stating what it wants to happen, and then deciding how to achieve these aims.
There are 3 stages in budgetary control:
- Preparation of plans - Targets are usually set which allows a business to determie whether its objectives have been met
- Comparision of plans with actual results
- Analysis of variances- trying to find out the reasons for the differences between the actual and expected outcomes.
Variances
- Is the difference between the figure that the business has budgeted for and the actual figure.
Note: variances can be favourable and adverse
Favourable: when the actual figure is higher than the budgeted figure.
Adverse: when the actual figure is lower than the budgeted figure.
Types of variances:
1) Income (sales) revenue variances
- shows budgeted income, actual income and income variances
2) Expenditure (cost) variances
- shows budgeted expenditure, actual expenditure and expenditure variances
Possible causes of FAVOURABLE variances:
1) the abilility to charge higher prices
2) an increase in demand
3) imporvements in quality of the product
4) and increase in consumer incomes
5) a change in consumer's taste
Possible…
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