Budgets and Budgetary Control
A budget is a detailed financial plan for a specific future period. It is usually expressed in numbers and money. It acts like a roadmap for a business or a bank. Budgetary control is the actual process of using these budgets. It involves setting targets and then checking if those targets are met. The main goal is to manage income and spending effectively. Management uses this system to track performance and fix problems early.
Concepts (3)
A flexible budget is designed to change based on the level of activity. It recognizes that some costs stay the same while others change with work volume. This provides a more realistic target for managers.
A flexible budget is designed to change based on the level of activity. It recognizes that some costs stay the same while others change with work volume. This provides a more realistic target for managers. Example: A factory makes a budget for 50% capacity and another for 80% capacity. If they work at 70%, they adjust the budget figures to match that level.
This is the process of comparing the actual results with the budgeted figures. If the actual cost is less than the budget, it is 'Favorable'. If the actual cost is more, it is 'Adverse' or 'Unfavorable'.
This is the process of comparing the actual results with the budgeted figures. If the actual cost is less than the budget, it is 'Favorable'. If the actual cost is more, it is 'Adverse' or 'Unfavorable'. This helps management find which department is performing well and which is not. Example: Budgeted rent was 10,000 but actual rent was 12,000. This is a 2,000 adverse variance.
ZBB is a method where every expense must be justified for each new period. It starts from a 'zero base'. You do not look at what was spent last year. It prevents managers from asking for money just because they had it before.
ZBB is a method where every expense must be justified for each new period. It starts from a 'zero base'. You do not look at what was spent last year. It prevents managers from asking for money just because they had it before. It is very useful for cutting waste in government departments. Example: A department must explain why it needs five printers this year, even if it had five printers last year.
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