Re-cap Charlie wants to set up a chocolate factory. Organise the below costs in to fixed (indirect) and variable (direct) costs. Raw materials Telephone Bill Wages Rent Electricity Bill Council Tax = 5mins

1) To describe what a budget is and why businesses use budgeting. UNIT TITLE: Topic 3: Accounts & Finance LESSON TITLE: Budgets COMPETENCY FOCUS: Key Skills (L5): you will be able to develop your numeracy skills to calculate financial transactions of a business and to interpret financial data. Learning Objectives By the end of the lesson, you should be able to… 1) To describe what a budget is and why businesses use budgeting. 2) To explain the advantages and limitations of using budgets for planning. 3) To calculate variance to determine the accuracy of budgets.

Key Terms Budget Variance Expenditure Income Forecast Favourable Adverse

Using the table below, complete a personal budget for yourself over the next 3 months. (5mins) Sept Oct Nov Income Allowance TOTAL Expenditure Phone bill Going out Christmas Savings

Fantasy Football League You have £40 million pounds to select your football ‘dream team’. You must not go over your budget. Use the website http://fantasy.premierleague.com/player-list/ to get the names of your players, the position they play and their cost. Once you have drawn on the following diagram the names and costs, you must then justify why you made the choices that you did and if you had to sacrifice any of your initial ideas.

Why budget? Planning – anticipate problems and provide solutions early Measure success and that objectives are being met Motivation when come in under budget! Prevents overspending

Problems with setting budgets Time-consuming therefore costly Planned figures therefore often inaccurate Conflict Changes in circumstances therefore unreliable May de-motivate if budget is unrealistic

Budgeting Vs Budgetary Control Budgeting : Helps a business to plan future expenditure and revenue, to make sure that the business makes a profit. Budgetary Control: Process of monitoring and checking if the business is coming in under or over budget and taking correct action if it overspending.

Case Study Task Complete case study task ‘why do businesses budget?’

Variance Analysis Stages in budgetary control Preparation of plans (budgets) Comparison of plans with actual results Analysis of Variances

Variance Analysis Variance = Difference between the predicted and actual figure. Can be ‘favourable’ (F) or ‘adverse’ (A) Example: Forecast Actual Variance Revenue 2,250 2,050 +200 (F) Labour 500 412 +88 (F) Materials 800 900 -100 (A) Transport 100 140 -40 (A) Profit 850 598 -252 (A)

Variance Analysis Forecast Profit= 2,250 – 1,400 = 850 Actual Profit = 2,050 – 1,452 = 598 Profit Variance = -£252 (A)

Task 2 Variance Analysis Task

Task 3 Produce a factsheet/information leaflet for Business Link to hand out to new business owners on the advantages of budgeting. You must include: What is a budget? What is budgetary control? Why is budgeting important? What are the advantages and disadvantages of budgeting? 5 Top Tips for budgeting your money

1) To describe what a budget is and why businesses use budgeting. UNIT TITLE: Topic 3: Accounts & Finance LESSON TITLE: Budgets COMPETENCY FOCUS: Key Skills (L5): you will be able to develop your numeracy skills to calculate financial transactions of a business and to interpret financial data. Learning Objectives By the end of the lesson, you should be able to… 1) To describe what a budget is and why businesses use budgeting. 2) To explain the advantages and limitations of using budgets for planning. 3) To calculate variance to determine the accuracy of budgets.

Key Terms Budget Variance Expenditure Income Forecast Favourable Adverse