Budgeting

The process of investigating any differences between budgeted figures and actual figures.

• Variance Analysis

• Favourable variance

• Adverse variance

Exists when the difference between the budgeted and actual figure leads to a higher than expected profit.

• Variance Analysis

• Favourable variance

• Adverse variance

Exists when the difference between the budgeted and actual figure leads to a lower than expected profit

• Variance Analysis

• Favourable variance

• Adverse variance

Benefits of variance analysis

• Can see which variable you have not estimated correctly.

• External problems will always impact on actual performance.

• Planning, control, coordination, communication, motivation

• Can halt investment and stifle entrepreneurial spirit. Miss key investment opportunities.

Drawbacks of variance analysis

• Can see which variable you have not estimated correctly.

• External problems will always impact on actual performance.

• Planning, control, coordination, communication, motivation

• Can halt investment and stifle entrepreneurial spirit. Miss key investment opportunities.

Benefits of Budgeting

• Can see which variable you have not estimated correctly.

• External problems will always impact on actual performance.

• Planning, control, coordination, communication, motivation

• Can halt investment and stifle entrepreneurial spirit. Miss key investment opportunities.

Drawbacks of Budgeting

• Can see which variable you have not estimated correctly.

• External problems will always impact on actual performance.

• Planning, control, coordination, communication, motivation

• Can halt investment and stifle entrepreneurial spirit. Miss key investment opportunities.

Budget Costs 1000 Actual Costs 800

• Favorable Cost Variance £200 (F)

• Adverse Revenue Variance £100 (A)

• Adverse Cost Variance £200 (F)

• Adverse Revenue Variance £1000 (A)

Budget Revenue 2500 Actual Revenue 2400

• Favorable Cost Variance £200 (F)

• Adverse Revenue Variance £100 (A)

• Adverse Cost Variance £200 (F)

• Adverse Revenue Variance £1000 (A)

Which is true?

• Adverse = Bad for the Business

• Favourable = Good for the Business

• Favourable = Bad for the Business

• Adverse = Good for the Business