Define the concept of budgeting? Budgeting is whenever a business has planned beforehand their costs, revenues, and resources over a period of time in order to predict their financial conditions, so they can set goals for the future. For example, expanding the continuing business, adding new product ranges, changing the design of the continuing business or moving the business location. Describe the three different types of budget (cost sales and profits)? The three types of budgeting are Expenditure, Sales, and Profit. Expenditure can be an operating budget that records the amount of money that the business enterprise can spend in confirmed time period.
Fixed and adjustable costs will be the two main types of expenditures that are computed to help make the expense budget for each month. This might be useful if there is overspending, they can see what is charging them the most and then make an effort to decrease this cost. For example, if their lorry insurance is high or their materials are costing too way too, they could address this cost by trying to find a cheaper supplier or insurance. Income Budget is the sales revenue target (projects further sales) for a department or for the whole business. This is therefore the business understands if the division is spending the full amount of money, if they need to carefully speeding their budget more.
For example, if the delivery vehicle is not using the full amount of its cover its delivery rounds, the business could increase the delivery path in order to increase its income and to maximize its income budget. Income Budget is the prospective profit for the carrying on business over an interval time.
This target profit includes the expense and revenue costs being merged into one budget to show the margin of revenue. For each month This allows the business to anticipate the revenues and the expenditure budget. For example, if a small business can predict their revenue and expenditure budget it will permit them to see if they can expand their business and if they can maximize their profits in any way.
Explain the process of creating a budget? For each month The budget is worked out through finding the fixed and variable costs. Then adding this sum of money into a fixed amount that has been planned into the budget, which can be paid every month or annually. Perform variance analysis?
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The variance evaluation is the distinctions between a well planned budget and the actual amount spent. Variance analysis tries to clarify the good reasons for the difference between the planned budget and the actual amount. For example, for the month income to costs £500 but it actually cost £700 if the business has budgeted. Variance analysis will describe the good reason for the increased cost to the wages, that could be because of a rise in the wage rate, decrease in the staff or efficiency as time passes.
Explain what can occur if the finances are not managed well? If a budget is not monitored or handled properly, the expenditures may go unmonitored which will decrease the profit that your business had planned to make. Other problems can arise if the expenses are remaining unmonitored. For instance, if the business spends over its expenses budget it will battle to make any of its targets and which makes it difficult to find what the reason was for this overspending.
If the budget is not maintained properly then faults can be produced which not only influence their financing situation and achieving targets but also the running of the business enterprise. Revenue is the income that is earned by the business through the number of items sold and the price they can be purchased at, over an interval time. Therefore, the amount of items sold will impact the success of the business enterprise. For example, if the business has a trend of a product then your business may be able to increase its profitability by selling all of their stock. However, the business can decrease its profits.