/
Using Budgets Using Budgets

Using Budgets - PowerPoint Presentation

mitsue-stanley
mitsue-stanley . @mitsue-stanley
Follow
392 views
Uploaded On 2016-04-12

Using Budgets - PPT Presentation

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

000 variance variances adverse variance 000 adverse variances cost budget reactions actual costs expected sales analysis budgeted favourable revenue

Share:

Link:

Embed:

Download Presentation from below link

Download Presentation The PPT/PDF document "Using Budgets" is the property of its rightful owner. Permission is granted to download and print the materials on this web site for personal, non-commercial use only, and to display it on your personal computer provided you do not modify the materials and that you retain all copyright notices contained in the materials. By downloading content from our website, you accept the terms of this agreement.


Presentation Transcript

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