1. Budgeting P5

2. Budgeting
Budgets
Variance
Break Even
Future Finance

3. Budgets 1 Managing costs is an essential aspect to running a business
It is necessary for managers to budget for both fixed and variable costs
Fixed costs do not change with output
E.g.
Variable costs change as output does

4. Budgets 2 There are various different types of budget:-
Historic budgets
Zero budgeting
Sales budgets
Expenditure budgets
Income budgets

5. Variance
Businesses set their budgets based on forecasts of both sales and costs
The difference between actual earnings/spending and those forecasted is known as variance

6. Variance
Businesses set their budgets based on forecasts of both sales and costs
The difference between actual earnings/spending and those forecasted is known as variance
Where costs are lower or earnings higher than forecast, there is said to be a favourable variance.
Where costs are higher or earnings lower than forecast, there is said to be an adverse variance.

7. Break Even
Break even occurs where sales revenue is equal to total costs.
Contribution per unit = Unit price – Variable costs per unit
Break Even = Fixed costs / Contribution per unit

8. Break Even
Break even occurs where sales revenue is equal to total costs.
Contribution per unit = Unit price – Variable costs per unit
Break Even = Fixed costs / Contribution per unit
Break even can also be shown using a graph
Key terms are Break Even Point and Margin of Safety

9. Future Finance
For many businesses, their income comes after they have spent a large sum of money. They often need to raise funds for investment or to manage their Cash Flow and Liquidity.

10. Future Finance
For many businesses, their income comes after they have spent a large sum of money. They often need to raise funds for investment or to manage their Cash Flow and Liquidity.
To do so, they will need to provide a financial plan, including a budget of income and expenditure.

11. Future Finance
For many businesses, their income comes after they have spent a large sum of money. They often need to raise funds for investment or to manage their Cash Flow and Liquidity.
To do so, they will need to provide a financial plan, including a budget of income and expenditure.
Money that is raised enables firms to enhance their Working Capital
Working capital = Current assets – Current liabilities.