2.2 budgets Flashcards
budget
financial plan that sets costs and revenus for the future
purpose
plan+monitor, coordinate,motivate,forecast
types of budget
historical and zero based
difference between the types of budgets
h= current finance and historical performance or prev yr income and expenditure
+ realistic due to ext factors eg econ indiactor - not other ext factors
z= spending justified for every £
+value for money - time consumimg, skilled and confident
income budget
indv sales target
informed= market research and sales forecasts
informs predicted inflows
expenditure budget
limit for period of time
informs=predicted outflows
profit budget
income-exp
target of surplus
informs=decision making
variance
difference; actual-budgeted
favourable= underspent costs and better than expected sales and profit
adverse= overspent costs and worse than expected sales and profit
v.analysis
allows comparison, monitors performance
identify cause, consider effect, solve
limitations
time consuming=opp cost
past trend=stm=unrelaistic=unachievable=lack of motiv
unforeseen events, unk actions of competetitor
managers lack exp= subject to bias
costs subject to change
only predictions and accurate as data= skills and training.
variance matter of concern?
depends= identify cause, size of variance, temp, foreseable,
are all variances bad
it could result from something good like high production costs due to inc sales= favourable sales so cause and sig matters!
pros and cons of variance
pinpoint actual cause peace of mind but time consuming for staff
highlight imp areas not in line with expectation= inaacurate data=wrong decisions
cocnc on large adv variances but precision is required
