Using budgets

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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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