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3.9 Budgeting ( a detailed financial plan for the future ) (Benefits…
3.9 Budgeting ( a detailed financial plan for the future )
Benefits
planning : manager can consider future plans carefully
Effective allocation of resources
setting targets to be achieved
coordination : discussion about the allocation of resources to different department
monitoring and controlling
modifying
assessing performance
preparation of budget
stage 1 : organisational objectives
Stage 2 : the key or limiting factor
Stage 3 : prepared the sales budget
Stage 4 : prepared subsidiary budget
Stage 5 : budget are coordinated to ensure consistency
Stage 6: a master budget is prepared
Stage 7 : the master budget is presented
setting budget levels
incremental budgeting : uses of last year's budget as a basis and a adjustment is made for the coming year
zero budgeting : setting budgets to zero each year and budget holder have to argue their case to receive and finance
limitation
lack flexibility
focused on the short-term
result in unnecessary spending
raining needs must be met
revised budgets may need to be set for new projects
cost and profit centres : a section of business such as a department, to which costs can be allocated
profit centre : a section of a business to which both costs and revenues can be allocated
budgetary control
variance analysis : the process of investigating any difference between budgeted figures and actual figures
adverse variances
sales revenue is below budget
actual raw material costs are higher than planned
labour cost are above budget
overhead costs are higher than budgeted
Favourable variances
sales revenue is above budget
raw materials costs are lower
labour costs are lower than planned
overhead costs are lower than planned than budgeted