Budgeting P5

Budgeting Budgets Variance Break Even Future Finance

Budgets 1 Managing costs is an essential aspect to running a business It is necessary for managers to budget for both fixed and variable costs Fixed costs do not change with output E.g. Variable costs change as output does

Budgets 2 There are various different types of budget:- Historic budgets Zero budgeting Sales budgets Expenditure budgets Income budgets

Variance Businesses set their budgets based on forecasts of both sales and costs The difference between actual earnings/spending and those forecasted is known as variance

Variance Businesses set their budgets based on forecasts of both sales and costs The difference between actual earnings/spending and those forecasted is known as variance Where costs are lower or earnings higher than forecast, there is said to be a favourable variance. Where costs are higher or earnings lower than forecast, there is said to be an adverse variance.

Break Even Break even occurs where sales revenue is equal to total costs. Contribution per unit = Unit price – Variable costs per unit Break Even = Fixed costs / Contribution per unit

Break Even Break even occurs where sales revenue is equal to total costs. Contribution per unit = Unit price – Variable costs per unit Break Even = Fixed costs / Contribution per unit Break even can also be shown using a graph Key terms are Break Even Point and Margin of Safety

Future Finance For many businesses, their income comes after they have spent a large sum of money. They often need to raise funds for investment or to manage their Cash Flow and Liquidity.

Future Finance For many businesses, their income comes after they have spent a large sum of money. They often need to raise funds for investment or to manage their Cash Flow and Liquidity. To do so, they will need to provide a financial plan, including a budget of income and expenditure.

Future Finance For many businesses, their income comes after they have spent a large sum of money. They often need to raise funds for investment or to manage their Cash Flow and Liquidity. To do so, they will need to provide a financial plan, including a budget of income and expenditure. Money that is raised enables firms to enhance their Working Capital Working capital = Current assets – Current liabilities.