1. 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?

2. 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.

3. 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

4. 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

5. 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

6. 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.

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

8. 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

9. 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

10. 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.

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

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

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