Good or bad? Actual income was £500 less than budgeted for the period. Actual expenditure was £52 higher than budgeted for the period. Good or bad? Actual profit was £552 less than budgeted for the period. Good or bad?

Learning Outcomes Recap what variances mean and identify which are adverse and which as favourable in a budget example. Provide solutions to help budget better. Complete a mock budget task.

What does variance mean? A difference in budgeted cost and actual costs. Favourable is….. … when actual results are better than expected results Adverse is…. … when actual results are worse than expected results

Work out the Variances of budget 1   Budget Actual Variance Sales Revenue 50,000 60,000 Fixed Costs 15,000 13,000 Labour Costs 20,000 17,000 Profit 30,000

And the Variances Are… Budget Actual Variance Sales Revenue 50,000   Budget Actual Variance Sales Revenue 50,000 60,000  10,000 F Fixed Costs 15,000 13,000  2,000 F Labour Costs 20,000 17,000  3,000 F Profit 30,000  15,000 F

Possible Causes for Favourable Variances Increases in revenue caused by: Customers turning to you from competitors. Changes in the economy which encourages consumer spending e.g. lower interest rates. Reductions in costs caused by: Extra discounts from suppliers. Cost saving methods introduced.

Solutions for Favourable Variances Lower prices to increase sales Increase Promotional spending Update the product range Look for new markets.

Work out the Variances for Budget 2   Budget Actual Variance Sales Revenue 75,000 71,000 Fixed Costs 32,000 33,000 Labour Costs 18,000 21,000 Profit 25,000 17,000

The Variances for Budget 2…   Budget Actual Variance Sales Revenue 75,000 71,000  4,000 A Fixed Costs 32,000 33,000  1, 000 A Labour Costs 18,000 21,000  3,000 A Profit 25,000 17,000  8,000 A

Possible Causes for Adverse Variances Reductions in revenue caused by: Competitors offering special price deals. Increased costs caused by: Rising indirect costs such as increases in rent or energy prices.

Solutions for Adverse Variances Obtain cheaper supplies Cut Wages Increase Labour Productivity Reduce Waste Levels.

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

Next Lesson… Continue with mock assessment Complete and assess Possible look at merit and distinction skills for budgets.