Unit 7 - Management Accounting P5 Describe how budgets can be used to set targets, to monitor and control an organisation
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Unit 7 - Management Accounting
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PEARSON (PEARSON)
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BTEC Level 3 National Business Student Book 2
Unit 7 - Management Accounting P5 Describe how budgets can be used to set targets, to monitor and control an organisation BTEC business level 3 extended diploma. Please leave a review if this was useful for you, thank you!
unit 7 p5 describe how budgets can be used to set targets
to monitor and control an organisation
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Sadia Hussain Unit 7
How budgets can be used to set targets, to monitor and
control
A budgeting is a financial plan for the future revenue and expenditure for a
business; it is for a certain period such as a month or year. It helps the
management of a business to plan how much revenue they will make and how
much the costs there will be. Budgeting helps business plan and keep in control
of the costs and not overspend, set and achieve targets and objectives, and
improve the overall performance of a business.
Set targets
Budgets can be used to set targets, such as by the business looking at their
previous year’s performance. For example, if the business wants to improve
their performance and make more revenue than they did the previous year,
they can look at how much they made then and set targets for how much they
want to make the current year. When creating budgets, it allows a business to
set targets and work towards something and head towards the right direction.
This would help the business to stay in more control, and achieve the
forecasted sales and revenue.
Targets will also allow employees to work towards something, helping the
motivation levels high, which would help the business to grow. For example,
Letzgo forecasted sales for the first quarter are 2600, and their forecasted
sales revenue is 2,080,000. These are the business’s target figures. By knowing
what figures to work towards they will be more likely to achieve their targets
and grow.
Monitoring
Budgets can also be used to monitor. Such as by the business checking the
budgets to on a regular basis to see if they are being met. For example, Letzgo
can regularly such as once a week check their budgets and see if they are
heading towards the direction into reaching them. If they are not, then they
could do something to improve, such as ways to make more sales, increase
promotions etc. Another way budgets can be used to monitor is by comparing
the forecasted sales, revenue and cost with the actual figures. This allows the
business to see if the budget has been met.
If the business has made lower than forecasted, then they can identify why,
and make changes so that in future the budget can be met and they can set a
more reachable target. This way the business can grow and improve their
1
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