Podcast
Questions and Answers
What is the primary function of the finance department in a business?
What is the primary function of the finance department in a business?
What are budgets primarily used for?
What are budgets primarily used for?
Which of the following is NOT a type of budget commonly used in businesses?
Which of the following is NOT a type of budget commonly used in businesses?
What is the purpose of comparing budgeted expenses to actual expenses in a variance analysis?
What is the purpose of comparing budgeted expenses to actual expenses in a variance analysis?
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What is the key difference between a budget and a forecast?
What is the key difference between a budget and a forecast?
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What is a key feature of income budgets?
What is a key feature of income budgets?
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How are expenditure budgets split?
How are expenditure budgets split?
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What is the core purpose of setting profit budgets?
What is the core purpose of setting profit budgets?
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Which of these is a step in the budget-setting process?
Which of these is a step in the budget-setting process?
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According to the sample budget provided, what is the predicted profit for February?
According to the sample budget provided, what is the predicted profit for February?
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What can be considered a potential challenge when setting budgets?
What can be considered a potential challenge when setting budgets?
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What is a potential benefit of setting budgets?
What is a potential benefit of setting budgets?
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Which of these is NOT a potential drawback of setting budgets?
Which of these is NOT a potential drawback of setting budgets?
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Study Notes
Autumn 2024 Budget Spending
- The total budget is £118.1 billion
- Transport: £20.5bn
- Defence: £18.9bn
- Education: £7.1bn
- Housing and Communities: £12.6bn
- Science, Innovation, and Technology: £13.9bn
- Health and Social Care: £8.2bn
- Energy Security and Net Zero: £6.1bn
- Block grants to devolved governments: £10.3bn
- Other: £20.5bn
Budgeting Process
- Setting Objectives: Start by clearly defining goals.
- Market Research: Gather data about the market to inform the budget.
- Sales Forecast: Predict future sales based on market research.
- Set Income Budget: Establish the desired revenue for a period.
- Set Divisional Targets: Assign financial targets to different parts of the business.
- Set Profit Budget: Determine the anticipated profit for the period, based on income and expenditure.
- Set Expenditure Budget: Set the amount to be spent for the period.
- Review Against Objective: Compare actual results against the budget.
The Finance Department
- Responsible for all aspects of accounting, from record-keeping to final accounts.
- Tasks include budgets, cash flow forecasting, credit control, paying suppliers, and year-end account analysis.
Budgets
- Forecasts or plans for a business's finances.
- Can be for the whole business or specific functions (e.g., marketing).
- Types of budgets include:
- Income budget: Target revenue for a period.
- Expenditure budget: Limit on spending for a period.
- Profit budget: Target surplus between income and expenditure.
Problems in Setting Budgets
- Reliance on predictions and forecasts (which can be inaccurate).
- Costs are frequently subject to change.
- Actions of competitors can be unknown.
- Managers' experience and potential bias.
- Time and resources needed to build and monitor budgets.
Benefits of Setting Budgets
- Establishing measurable targets for outcomes, such as sales targets and efficiency.
- Guiding decision-making processes.
- Motivating budget holders through increased responsibility.
Budget Impacts on Stakeholders
- Managers are constrained by budgets to achieve goals.
- Other departments (e.g., marketing) are restricted.
- Suppliers may face negotiation pressures.
- Customers might experience price changes.
- Employees might see changes in work hours or staffing levels.
Sample Budget (Example)
- January: Income budget: £5,000; Expenditure budget: £2,500; Profit budget: £1,500
- February: Income budget: £6,000; Expenditure budget: £3,500; Profit budget: £2,500
- March: Income budget: £6,000; Expenditure budget: £3,500; Profit budget: £2,500
Wedding Budget Exercise
- Task 1: List the top 20 wedding items.
- Task 2: Assign a budget to each item.
- Task 3: Analyze the variance between average actual costs and budgeted costs, for each item.
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Description
Explore the details of the Autumn 2024 budget spending, which totals £118.1 billion across various sectors including transport, defence, education, and more. Understand the budgeting process that guides this allocation, from setting objectives to reviewing performance against goals.
