1. Setting and monitoring budgets

2. Sales/revenue budgets A sales budget is a financial plan for the future sales of the businessA sales budget is a financial plan for the future sales of the business Sales budgets are key as they are the main source of cash inflowSales budgets are key as they are the main source of cash inflow

3. Sales/revenue budgets Budgets depend on consumer behaviour and the nature of the market that the business operates in and therefore difficult to predictBudgets depend on consumer behaviour and the nature of the market that the business operates in and therefore difficult to predict A combination of market research, data, trend analysis and experience are used to predict figuresA combination of market research, data, trend analysis and experience are used to predict figures For retail, expenditure budgets are dependent on the amount of goods likely to be soldFor retail, expenditure budgets are dependent on the amount of goods likely to be sold

4. Purchase/expenditure budgets For manufacturing the budget is based on how much is likely to be producedFor manufacturing the budget is based on how much is likely to be produced Obviously an overestimate results in money being unnecessarily tied up in stockObviously an overestimate results in money being unnecessarily tied up in stock The difference between a planned and actual budget figure is known as a varianceThe difference between a planned and actual budget figure is known as a variance

5. Purchase/expenditure budgets An underestimate results in dissatisfied customers who may be lost foreverAn underestimate results in dissatisfied customers who may be lost forever Budget needs to be enough to satisfy forecasted salesBudget needs to be enough to satisfy forecasted sales Depends also on types of workers used together with other costs such as rent, rates, utility bills etcDepends also on types of workers used together with other costs such as rent, rates, utility bills etc

6. Purposes of budgets Planning toolPlanning tool Help coordinate activities of the business – enables managers to quickly assess the performance of the businessHelp coordinate activities of the business – enables managers to quickly assess the performance of the business Encourage proactive management of expenditure (make decisions in anticipation of significant events which would affect budgeting)Encourage proactive management of expenditure (make decisions in anticipation of significant events which would affect budgeting)

7. Purposes of budgets Encourage investorsEncourage investors Allows managers to have an individual responsibility for their particular areaAllows managers to have an individual responsibility for their particular area Motivation of staffMotivation of staff

8. Exercise Summarise the four stages of setting a budget as outlined on page 352Summarise the four stages of setting a budget as outlined on page 352 Draw the diagram on the process of setting a budget on page 353Draw the diagram on the process of setting a budget on page 353 Chapter review and practice questions p365 questions 1, 2, 3 on page 355-6Chapter review and practice questions p365 questions 1, 2, 3 on page 355-6 Integrated activity page 356Integrated activity page 356