1 Understand the impact of internal and external factors on budgetary planning in a business
1.1 Assess the need for long and short term budgetary plans in a business
1.2 Discuss the relationship between functional departments and responsibility centres
1.3 Evaluate internal and external sources of information used to determine cost, price and demand
2 Understand how to manage a budget
2.1 Evaluate strategies used to manage budget variance
2.2 Assess how budgetary management controls are used to optimise business performance
3 Understand how to analyse cost information in business
3.1 Distinguish between the different types of cost incurred by businesses
3.2 Discuss the uses of cost data for business planning and control purposes
3.3 Evaluate methods and techniques used to calculate business costs
1 Understand the impact of internal and external factors on budgetary planning in a business
Long-term and short-term planning: roles of long- medium- and short-term planning, turning the corporate plan into a series of short-term plans (budgets), strategic planning, operational planning and management control
Functional departments and responsibilities centres: functional departments e.g. production, sales, HR, research and development, purchasing, marketing; responsibilities centres e.g. revenue centres, expense centres, profit centres, investment centres; relationship between functional departments and responsibilities centres; difference in how inputs and outputs are measured
Internal and external sources of information: past data on trends e.g. costs, sales, profit margins, changes in consumer needs, suppliers; government e.g. changes to taxation, interest rates; information on competitor activity; new technological developments which would impact on sales; reliability of source; accuracy of information
2 Understand how to manage a budget
Variance: difference between budgeted figures and actual figures; positive/favourable variance; adverse/unfavourable variance; identify reason for variance; where remedial actions are needed; adjustments to forecasts; reduction in spending e.g. change supplier, reduce labour or overheads; adjustments to processes, e.g. change to production process, increase or reduce advertising
Budgetary management controls: clearly defined responsibilities; planning for future; early detection of problems; identification of potential problems; identify and set targets; promotes coordination of activities; ability to review and revise forecasts; management and allocation of resources and finance to meet business objectives; evaluation and monitoring process; basis for performance appraisal; ability to take corrective actions; investigation of unaccounted variance
3 Understand how to analyse cost information in business
Cost: start-up costs; operating costs; fixed costs do not change with production levels, e.g. heating, lighting, rent; variable costs will change depending on how much is produced e.g. raw materials; semi-variable costs; direct costs directly associated with the production of a product or service e.g. raw materials, labour costs; indirect costs not directly linked to a specific product e.g. heating, advertising; total costs
Use of cost data for business planning: cost, profit and investment centres; how standard costing and variance analysis can contribute to control of costs and other decisions in the organisation; cost benefit analysis; break even analysis to identify when revenue is equal to costs; trend analysis; how marginal costing/contribution analysis contributes to decision making
Costing methods and techniques: process costing; job costing; batch costing; product costing; activity based costing; use of cost centres to identify profitable areas of the business; absorption costing; the concept of a standard cost for products and/or services, how standard costs are calculated; the concept of marginal cost, how marginal cost is calculated; pay back method
