Uses of Budgets for Measuring Performance
How can budgets be used to measure business performance?
Budgets can be used to measure business performance by comparing actual results against budgeted figures, analyzing variances, identifying areas of over or underperformance, evaluating cost control measures, and assessing the achievement of financial targets.
How can businesses compare actual results with budgeted targets?
Businesses can compare actual results with budgeted targets by analyzing the variance between the two. This involves identifying and quantifying the differences between the actual financial figures (such as revenue, expenses, and profit) and the corresponding budgeted amounts. Variances can be analyzed in terms of their causes, significance, and impact on business performance, enabling businesses to assess their financial performanceand identify areas of strength or weakness. This comparison helps businesses understand the reasons behind deviations from the budget and take appropriate actions to address any discrepancies or make necessary adjustments for future budgeting cycles.