3.9 Budgets

cost centre

department/division within a org that is respondible and help accountible for its own costs. it doesnt create direct revenue but adds to the cost of running a bus

profit centre

department/division within a org thats respondible and held accountable for both tis costs and revnues and its resulting profits.

5 roles of cost and profit centres

1. monitoring & control - they help a bus to controle ach aspect of thier operations especially for larger and expandin business.

2. motivational - entrusting responsibility of cost and profit to centres can be highly motivating

3. enhancing descision making - speed and quality of descision making improves bc managers pf the centres can make autonomus descisions

4. accountability - helps make managers accountable got thier specific responsibilites including bility to control costs and revenues

5. stategic planning - profit centres can be used in stratefic planning and resouce allocation if theres enough data abt which centers incur the more costs or contribute most to revenue

budget

a plan of the costs and revenue with the plan of achieving the objectives of a business in a given time period

variance

exists when the actual outcome differs from the budgeted figure. classified as either favourable (higher than expected) or adverse (lower than expected)

favourable variance

exists when the difference btw the actual and budgeted figure is beneficial to the bus

adverse variance

exists when the difference btw the budgeted figure is not advantageous to the bus

importance of budegts

• allows senior managers and other stakeholders to measure the degree of sucess or failure of the firms business strategy

• effectiveness of leadership in a business becomes questionable if budgets are ignored or not adhered to

• ensure all financial implications of a bus are considered

• strategy - lookign and performace th ebus can now make informed descisons for the future