1. 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

2. 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.

3. Key Terms Budget Variance Expenditure Income Forecast Favourable
Adverse

4. 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

5. Fantasy Football League
You have £40 million pounds to select your football ‘dream team’. You must not go over your budget. Use the website 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.

7. 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

8. 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

9. 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.

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

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

12. 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)

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

14. Task 2
Variance Analysis Task

15. 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

16. 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.

17. Key Terms Budget Variance Expenditure Income Forecast Favourable
Adverse