AS Business Studies Aims amp Objectives Aim Understand variance analysis Objectives Define variance analysis Explain the causes of variance Analyse managerial reactions to variance analysis ID: 279989
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Slide1
Using Budgets
AS Business StudiesSlide2
Aims & Objectives
Aim:
Understand variance analysis
Objectives:
Define variance analysis
Explain the causes of variance
Analyse managerial reactions to variance analysis
Evaluate the usefulness of variance analysisSlide3
Starter
Define a budget
Give 2 advantages to the business of using budgets
Give 2 disadvantages to the business of using budgets.Slide4
+ / - of BudgetingSlide5
Bob’s Beer Budget
Bob
University Student
Budgeted his first week at universityAfter his first month he realised that his actual amount spent was differentSlide6
Bob’s Beer Budget
Item
Budgeted Cost £
Actual Cost £
Difference +/- £
Food
50
15
Alcohol
20
112
Fancy Dress
20
72
Cleaning Products
5
0
Train Ticket Home
30
30
Total
125
229Slide7
Bob’s Beer Budget
Item
Budgeted Cost £
Actual Cost £
Difference +/- £
Food
50
15
+ 35
Alcohol
20
112
- 92
Fancy Dress
20
72
- 52
Cleaning Products
5
0
+ 5
Train Ticket Home
30
30
0
Total
125
229
-104Slide8
Bob’s Beer Budget
Bob blew his budget in the first week!Slide9
Variance Analysis
Variance:
the difference between a budgeted figure and the actual figure achieved.
Variance Analysis:
is the comparison by an organisation of its actual performance with its expected budgeted performance over a period of time.Slide10
Favourable Variances
Favourable Variances:
A better result than expected
Budgeted figure is less (costs) or more (revenue) than expected.
Leads to higher than expected profits
Item
Budget £
Actual
£
Variance £
Sales Revenue
50,000
60,000
10,000 favourable
Fixed Costs
15,000
12,000
3,000 favourable
Evaluation:
Favourable variances are not always good, as cheaper costs, may mean that quality of goods suffers as a result!Slide11
Adverse Variances
Adverse Variances:
A worse than expected result
Costs higher or revenue lower than expected
Should lead to lower than expected profits
Item
Budget £
Actual
£
Variance £
Sales Revenue
50,000
40,000
10,000 adverse
Fixed Costs
15,000
17,000
2,000 adverseSlide12
Worksheet
Budget
Actual
Variance
Sales Revenue
£650,000
£645,000
Fixed Costs
£46,000
£44,000
Labour Costs
£230,000
£256,000
Material Costs
£98,000
£94,000
Profit
£276,000
Slide13
What causes variances?
In groups discuss what the main causes of favourable and adverse variances may be?Slide14
Favourable Variance CausesSlide15
Adverse Variance CausesSlide16
Decision Making
Variances affect decision making by managers.
Task: Identify the potential drawbacks of the following management reactions to adverse sales variances.Slide17
Adverse Sales Variance ReactionsSlide18
Adverse Sales Variance ReactionsSlide19
Adverse Cost Variance Reactions
Task: Identify the potential drawbacks of the following management reactions to adverse
cost variances.Slide20
Adverse Cost Variance ReactionsSlide21
Adverse Cost Variance ReactionsSlide22
Highcroft
Hotels Case Study