A2 Chapter 33 Budgets
See case study page 486 Anglo American Intro page 486
Budget:
• A detailed financial plan for the future.
• Set for sales revenue & costs, usually by cost or profit centre,
month on month.
Advantages of setting budgets
1. Planning.
2. Effective resource allocation.
3. Target setting and delegation of accountability to budget
holders; associated motivation.
4. Coordination between departments in budgetsetting and in
working cohesively to meet these budgets.
5. Monitoring & controlling within the dynamic business
environment.
6. Modification of plans if necessary.
7. Measuring and assessing performance of managers using
variance analysis.
The budgetholder: the person responsible for the setting and
achievement of, a budget.
Variance analysis: calculation of the difference between budgeted
and actual figures, and analysing reasons for these.
1
, Key features of budgets
• Budgets are not forecasts (predictions of what may occur), they
are targets to achieve.
• Info used to compile budgets is likely to be from forecasts,
however.
• Should be compiled with a great degree of coordination
between departments to avoid duplication of cost allocation and
conflicting objectives being sought in budgets.
• Junior managers responsible for fulfilling the budgets should be
consulted when drawing them up this is known as delegated
budgeting. It leads to more realistic budgets being set, improved
motivation (links with Herzberg challenging and rewarding work
is a motivator) from workers and commitment to achieving the
budgets.
2
See case study page 486 Anglo American Intro page 486
Budget:
• A detailed financial plan for the future.
• Set for sales revenue & costs, usually by cost or profit centre,
month on month.
Advantages of setting budgets
1. Planning.
2. Effective resource allocation.
3. Target setting and delegation of accountability to budget
holders; associated motivation.
4. Coordination between departments in budgetsetting and in
working cohesively to meet these budgets.
5. Monitoring & controlling within the dynamic business
environment.
6. Modification of plans if necessary.
7. Measuring and assessing performance of managers using
variance analysis.
The budgetholder: the person responsible for the setting and
achievement of, a budget.
Variance analysis: calculation of the difference between budgeted
and actual figures, and analysing reasons for these.
1
, Key features of budgets
• Budgets are not forecasts (predictions of what may occur), they
are targets to achieve.
• Info used to compile budgets is likely to be from forecasts,
however.
• Should be compiled with a great degree of coordination
between departments to avoid duplication of cost allocation and
conflicting objectives being sought in budgets.
• Junior managers responsible for fulfilling the budgets should be
consulted when drawing them up this is known as delegated
budgeting. It leads to more realistic budgets being set, improved
motivation (links with Herzberg challenging and rewarding work
is a motivator) from workers and commitment to achieving the
budgets.
2
