Budgetary

Accounting
Budgets and Budgetary
control
What is a budget?
 A budget is a well detailed financial plan for a
future period.
Advantages of cash Budget
Preparing a cash budget has a number of benefits:
 It can identify any times where there may be a shortage
of cash. This will allow the business to plan ahead and
arrange extra funding such as a bank overdraft.
 It can help to regulate expenses. Any months where
expenses are high will be highlighted by a cash budget.
 It will clearly show where a business has more cash
than expected (surplus) or less cash than expected
(deficit). This will allow a business to plan more
effectively and make better decisions.
Categorizes of budgets
 Fixed budgets
 Flexible budgets
 Zero-based budgets
Types of Budgeting
 Production budget
 Sales budget
 Material budget
 Cash budget
 Labour budget
 Master budget
What is variance?
 The difference between actual results and
budgeted figures of the firm.

(Actual – Budgeted)
 Variance
 Favourable (positive)- where the actual figure is
higher than the budgeted figure.

 Unfavourable (adverse)- where actual figure is

lower than the budgeted figure.
Question May/June 2016
Formula: Actual figure- Budgeted figure
Departments Budget (US $) Actual (US $) Variance (US$)

Production 150000 120000 30000

unfavourable
Human 60000 70000 10000
Resources favourable
Marketing 240000 280000 40000
favourable
Class activity
Calculate the variances and indicate whether its favourable or
unfavourable

Department Budget Actual Variance

overheads
Selling and 8000 6000 2000
distribution unfavourable
Administration 9000 8000 1000
unfavourable
Production 22000 27000 5000 favourable
Personnel 1000 2000 1000 favourable