Budgeting Flashcards
Effective utilization of available resources to achieve objectives of an org.
Makes to think longer-terms rather than short-term, day–to-day management
Blueprints that guide execution
Strategic planning
Allow management to better monitor spending
Allows managers to determine ‘ineffective’ (extravagant) expenditures.
Communicate financial plans to key stakeholders
reasons to budget
Total revenue= total cost
Break-even analysis
What attendance level is needed to have a viable event?
break even analysis
_____ cost changes as sales and attendance change
_____cost remains stable
variable
fixed
Price (e.g. registration fee) –variable cost per unit
contribution margin
Fixed cost ÷contribution margin
break-even attendance point
_____ is also a mechanism for monitoring and controlling revenue and spending
budgeting
Comparing budget figure to actual figure
Difference between an budgeted amount
variance analysis
What is the variance between them?
Favorable or unfavorable?
Investigation of these differences.
variance analysis
zero-based budgeting
what is it
Using a previous period’s budget
Baseline is automatically approved
Budget is stable, manager can operate it on a consistent basis
No incentive to reduce costs
incremental budgeting
Rate of return = return on investment
capital budgeting
Spending on buildings, facilities, and other tangible assets
capital budgets
Spending on day to day operation
operational budget
recurrent budget
operational budget
investment budget
capital budget
Principles in budgeting
Budgets should be accurate.
Budgets should be flexible
Expense items should be priced through more than one source.
Budgets should be accurate.
Problematic if budgets are continuously over/ under performed.
Budgets should be flexible
Flexibility should be built in that allows money to be moved around.
E.g.)Reserve fund
Never rely on only one source to budget an expense item (Typically at least three potential providers). cost control
Expense items should be priced through more than one source.
