Don’t ask me, I have no idea!

Put simply, a budget is a tool that is used to plan for expected revenue and expenditure. A budget is set within a given time frame. There are various types of budgets… Sales Staffing Production Marketing Zero Flexible The Chief Financial Officer is usually in charge of the budget for a business.

The purpose of a budget is to assist with: Planning Coordination Control Resource allocation Motivation TASK: Read page 240 of your text. Use the information to create a mind map detailing the purpose of a budget.

When planning a budget, a business should consider: Available finance Historical data Organizational objectives Benchmarking the competition Negotiations: what does the rest of the team think is appropriate?

Ummmm, when you figure this one out, let me know!!

Budgeting has limitations: Changes!! Errors in estimating amounts Spend it or lose it! Errors from lack of knowledge Cost cutting can lead to ‘cutting corners’ Time consuming Unhealthy competition

Concept of cost centre is that the area responsible for costs records costs and does the planning Departments Product line Geographical location Concept of profit centre is that both costs and revenues are recorded and used in planning Same as cost centre but revenue streams are also available, e.g. Ford Motor Co (Taurus is most profitable)

What are the advantages of using profit centres for a business? Decision making… Accountability… Problem solving… Motivation… Benchmarking… Problems? Allocating indirect costs External factors beyond control Conflicts

TASK: Complete Question (a, b) on pg 379 of your old text. Complete Question (a, b) on pg 381 of your text. Complete Question 3.4.3(a, b) on pg 382 of your text.

Mc is a college student who has plans to visit Prague in the summer holidays. The cost of the vacation is expected to be around $500, all inclusive. M has a part-time job for which he is paid $150 per week. His expenses average $110 per week. There are ten weeks until the summer holidays. a)Calculate whether M is likely to be able to afford the holiday. b)Outline how budgeting can help M in his financial plans for the summer holidays.

Ryanair Ryanair bought 27 Boeing 737 aircraft worth 960 million pounds. The company enjoyed double-digit growth for a decade. To celebrate its 20 th birthday Ryanair issued tickets at 1 pound. With 500 routes to more than 25 countries, Ryanair is Europe’s largest airlline as measured by passenger numbers. a)Other than by calculating the number of customers, state two other ways to measure the market size of airline companies. b)Explain two limitations of using budgeting at Ryanair.

Question – Michael Cahill a. Income = $150 * 10 = $1,500 Outgoings = $110 * 10 = $1,100 Net income = $400 Based on the projections, Michael will be short of $100 from being able to pay for his overseas holiday. b. Budgeting as a forward-looking plan might be able to help Michael because it allows him to assess whether he is achieving his objectives (i.e. a planned holiday in Prague). He can then take appropriate action in order to resolve any expected financial problems before they arise. Examples of such corrective measures include: Reducing his outgoings – especially those that are non-essential or ‘flexible’ Raising income – perhaps by working overtime at weekends or evenings if possible

Question – Tsingtao Brewery Company a.Budgeting is the cyclical (or on-going) process of planning, setting, controlling, monitoring and reviewing the financial plan of expected revenue and expenditure for an organization (or a department within an organization), for a given period of time. Being China's largest brewery, Tsingtao will need effective budgetary control in order to run its global operations efficiently. Budgeting as a management tool is important to a firm such as Tsingtao for several reasons, which include: b.Budgeting can be used to motivate Tsingtao managers and other budget holders, to encourage responsibility and accountability and to aid financial control. It helps to control business costs in order to prevent liquidity problems. It has a central role in business strategic planning, e.g. setting aside a budget to sponsor major sporting events such as the Beijing Olympic Games. Budgeting requires Tsingtao managers to plan for the future as it tries to enhance its corporate brand awareness.

Question – Ryanair a.Market size can also be measured by: Size of each airline company’s fleet (number of aircraft owned) Sales revenue of the airline as a proportion of the total sales within the airline industry Relative profit figures of each airline company b.Limitations of using budgeting at Ryanair include: Unforeseen changes in the external business environment can cause large variances in budgets, e.g. the financial tsunami of 2008 causing major repercussions for the airline industry or fluctuating exchange rates affecting the final price paid for the Boeing (American) aircraft.