Basics of financial management Chapter 14

Budgeting Budgeting is the translation of plans into quantitative (financial) statements. Budgeting is part of short-term planning.

Communication and coordination Budget purposes Planning Communication and coordination Target-setting and authorization Evaluation

Balanced scorecard Vision and strategy Customer perspective Business processes perspective Financial perspective Learning and growth perspective

Master budget Sales budget Operational budgets Financial budgets Production budget Projected cash flow Projected profit and loss account, Balance sheet Material, staffing budgets Purchasing budget

Cost budgets Variable cost budget Standard cost per activity Fixed cost per period Fixed cost budget Combination of variable cost budget and fixed cost budget Mixed budget

Budget evaluation Diffe-rence? Budget Actual figures Analysis!

Variance analysis Budget variance = (Qs x Ps) – (QA x PA) Efficiency variance = (Qs – QA) x Ps Price variance = (Ps – PA) x QA possibly also: - volume variance - spoilage variance

Budget variance Price PA Price variance Ps Standard costs Efficiency variance Qs QA Quantity