Budgetary Processes, Responsibilities and Uncertainties

Material Price Variance

measures the difference between the actual and standard cost of materials

Material Usage Variance

measures the difference between the standard quantity of materials that should have been used for actual production and the actual quantity used.

Labour Rate Variance

compares the standard wage rate per hour with the actual wage rate per hour

Sales Volume Variance

measures the effect on profit caused by the difference between the actual unit sold and budgeted units sold

Production Manager

oversees how the materials are used (Material Usage Variance)

Human Resources Manager

responsible for setting up pay rates, bonuses and labour contracts for employees (Labour Rate Variance)

Purchasing Manager

negotiates and manages the supplier contracts which directly affects the material cost (Material Price Variance)

Sales Manager

responsible for the quantity good sold compared to budgeted sales (Sales Volume Variance)

Zero Based Budget

Where every expense/or budget needs to be justified and approved for each new period

Where the budget is changed to reflect a different volume of activity

Flexible Budget

Simulation

Multiple variables within a budget are adjusted to see the effect on performance

Incremental Budget

Where current year’s budget is based on the previous year’s figures

Sensitivity Analysis

Where an individual variable within a budget are adjusted to see the effect on performance

Value Analysis

where an individual focuses on cost reduction and improving the efficiency

Rolling Budget

When the budget is updated and extended at the end of a set time period

Budget Committee

in charge of monitoring departmental budgets making sure that they are properly adhered to by al departments. they ensure that all department follows or works towards the same financial goals and ensure that the budget are realistic and matches up with overall strategy.

Departmental managers/Budget Holders

they are in charge of preparing budgets. they make sure that the budget is submitted to the budget committee for approval on time. they work with the budget accountant to discuss ant variances and explain why they have risen and any other information that may assist in improving the forecasting systems.

Budget Accountant

they control the budget administration. they are responsible for dealing with budgetary control problems such as unrealistic budgets, Inaccurate forecasting and any other problems.