UNIT 2: USING BUDGETS

BUDGETS are agreed plans of action over a given period of time, e.g. 12 months
1. The benefits of using budgets are maximising revenue, control spending, ensure resources are used efficiently and efficient cash flow
2. The disadvantages of using budgets are that it can lead to unrealistic targets and the external and uncontrollable factors can affect the accuracy of the budgeted figures
INCOME BUDGETS are planned targets for revenue in a given period of time
EXPENDITURE BUDGET are planned targets for spending or costs for a business in a given period of time
PROFIT BUDGETS are planned targets for profit in a given period of time
VARIANCE is the difference between the budgeted and actual figures
1. FAVOURABLE VARIANCES are variances that occur when actual figures are better than budgeted figures
  1. Some reasons for this could be that inaccurate budgeted figures, higher demand than expected, fewer machine breakdowns, improvements in the motivation of staff and reduced cost of materials
2. ADVERSE VARIANCES are variances that occur when actual figures are worse than budgeted
  1. Some reasons for this could be that budgets have inaccurate figures, lower demand for than expected, machine faults, more overtime, increased cost of resources

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	Created by Alessandra Genco almost 11 years ago