Bingo Budget Variance Favourable Adverse Profit Expenditure

Learning Outcomes Recap key points on budgets Continue with P6 part 1 and M4 budget mock assessment If we have time: Identify the key skills needed for the distinction criteria using the mock assessment Write a plan to attempt the mock assessment distinction task

Key Terms Quiz What is a budget? Name one importance of a budget for a business? What is a variance? What is a favourable variance? What is an adverse variance? If the sales of a product is £500 higher than budgeted is it adverse or favourable? A business spends £300 less on raw materials than budgeted. Is this adverse or favourable? What issue could there be for a business spending less on raw materials?

Key Terms Quiz What is a budget? An estimate of what you expect to spend and make. Name one importance of a budget for a business? To ensure a business doesn’t over spend. Improve spending etc What is a variance? A difference between what you want to spend or make and what you do spend or make. What is a favourable variance? Better than expected results. What is an adverse variance? Worse than expected results. If the sales of a product is £500 higher than budgeted is it adverse or favourable? Favourable A business spends £300 less on raw materials than budgeted. Is this adverse or favourable? What issue could there be for a business spending less on raw materials? Poor quality products resulting in less sales.

Budgeting Mock Assessment Complete all questions Task 1 questions – P6 (part 1) Task 2 questions – M4

Budgeting Mock Assessment – Task 1 Item Budgeted figure (£m) Actual figure (£m) Variance (£m) Sales of Chanel No 5 200 187  13 adverse Sales of Coco Mademoiselle 356 362  6 favourable Total sales 556 549  7 adverse Marketing and promotion 46 55  9 adverse Administration 32 38  6 adverse Wages 65 66  1 adverse Raw materials 89 79  10 favourable Total costs 232 238 Profit/Loss 324 311

Budgeting mock assessment Task 2 M4 Suggest possible reasons for the variances identified. Analyse what you think has happened and the knock-on effects this will possibly have to the business in both the short and long term. Chanel No 5 sales – knock on effect from raw materials Profit – Not realistic/impact on No 5 sales being less Marketing – could of cost more/or not Raw materials – Cheaper supplier = might of have knock on effect on quality resulting in lower than anticipated No 5 sales.

Budgeting mock assessment Task 2 M4 2. What areas would they want to see improved and how might they go about doing so? Sales = use previous sales figures to budget properly. Spend more on marketing or spend wisely on marketing Spend more on raw materials 3. Is it favourable variance always a good thing? Consider ways that favourable variances may impact a business negatively. 4. Is an adverse variance always a manager’s fault? Discuss possible reasons why this might not be true.

D3: Evaluate the problems they have identified from unmonitored costs and budgets

D3: Evaluate the problems they have identified from unmonitored costs and budgets Evaluate – develop further an argument for problems – don’t just state a fact. Issues with unmonitored costs and budgets?

D3: Evaluate the problems they have identified from unmonitored costs and budgets Bullet point a plan for the following questions based on the mock assessment for P6 part 1 and M4: Evaluate the problems and consequences that could occur if the budget was left unmonitored. Evaluate the long term consequences of this. Explain how costs could have been reduced.

Next Lesson Complete mock assessment for P6 and M4 Hand in D3 plan