672213
Description
Mind Map by Emma Bennett, updated more than 1 year ago
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Created by Emma Bennett
over 10 years ago
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Budgeting
- A budget is a target for cost
or revenue that a firm or
department must aim to
reach over a given period.
- The aim of a budget is to
control expenditure and to
challenge departments to
increase revenue and
profits
- Budgeting is the process
of setting targets, covering
all aspects of costs and
revenue
- Budgets tell individual
managers how much they can
spend to achieve their
objectives
- EXAMPLES
- A restaurant
manager may be
given a budget for
refurbishing a
restaurant.
- A marketing
department may be
given a budget for
buying new cars
- A restaurant
manager may be
given a budget for
refurbishing a
restaurant.
- A budgeting system
shows how much can be
spent and gives managers
a way to check whether
they are on track
- Budgeting process
- Make a judgement of
the likey sales
revenue for the
coming year
- Set a cost ceiling that
allows for an
acceptable level of
profit
- This company's budget costs is
then broken down by division
department or by cost centre
- A budget may then be broken
down further so that each
manager has a budget and
therefore some spending
power
- A budget may then be broken
down further so that each
manager has a budget and
therefore some spending
power
- This company's budget costs is
then broken down by division
department or by cost centre
- Set a cost ceiling that
allows for an
acceptable level of
profit
- Make a judgement of
the likey sales
revenue for the
coming year
- What is Budgeting for?
- Control - limits expenditure. It
ensures that no department or
individual spends more than the
company expects them to. Avoids
unpleasant surprises.
- Delegation - can spread out
responsibility for profits and
income. Spreading the work
load. Can ensure closer
monitoring and control.
- Yardstick - helps measure
performance and monitor progress. It
is a benchmark against which a
company can monitor current sales
and spending. Gives you a chance to
make changes to get back on target.
- Motivation - Giving
people budgets can
make people work
harder. Giving people
the opportunity to
make decisions could
empower them.
Prepares staff to take
on responsibility.
- Control - limits expenditure. It
ensures that no department or
individual spends more than the
company expects them to. Avoids
unpleasant surprises.
- TYPES OF BUDGET
- Profit Budget - The profit
budget is a target which
firms aim to achieve or
exceed. Profit budget is
a consequence of the
other two budgets
- Expenditure Budget - The
expenditure budget is a
control limit which puts a
cap on how much a
business or department
can spend. Managers
who over spend will have
a stern talking to
- Income budgets - a
minimum target for
desired revenue
levels. Managers will
be encouraged to
exceed it is is
important that these
targets are realistic.
- Profit Budget - The profit
budget is a target which
firms aim to achieve or
exceed. Profit budget is
a consequence of the
other two budgets
- Benefits/Drawbacks
- Benefits :
Controlling
finances.
Improving Staff
performance
- Drawbacks:
Conflicts can arise.
Motivating impact
of budget can fail to
be acheived.
- Benefits :
Controlling
finances.
Improving Staff
performance
- Variance : The difference
between budgeted figure and
actual figure.
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