Budgets Flashcards
budget meaning
A budget is a financial plan which sets out costs and revenues.
Reasons for budgets
Planning and monitoring
Control
Motivation and efficiency
Planning and monitoring
Problems and solutions considered and solved in advance.
Control
Review of company and department objectives
Motivation and efficiency
Important in setting targets and measuring success
Spreads decisions across organisation which acts as motivation for managers.
Budgets time?
Budgets set annually and monitored monthly
Historical figure budgeting
Based on historical data
Zero based budgeting
Dont allocate budgets.
Zero based budgeting negatives
Requires spending to be justified
Time consuming
Skilled and confident employees needed.
Variance Analysis
Difference between figure budgeted and the actual figure.
Favourable Variance
Where the actual figure achieved is better than the budgeted
Adverse Variance
Where the actual figure achieved is worse than the budgeted figure
Adverse Variance
Seek alternative suppliers
Review marketing activities
Favourable Variance
Ensure output standards are met
Reward client-facing staff
Difficulties of budgeting
Managers focus on short term rather than long term
Unachievable budgets can have a negative impact on motivation
Innaccurate data makes budgets useless.
