3.9 Budgets

• Cost centers are the parts of a business that incur costs but are not involved in generating profit.
• Profit centers are the parts of a business that incur both costs and revenues.
• A budget is a financial plan for a given time period.
• Variance is the difference between the budgeted figure and the actual expenditure figure.
• Favourable variance is when the actual figure is lower than the budgeted figure.
• Adverse variance is when the actual figure is higher than the budgeted figure
• The four components of effective budgeting are monitoring, planning, controlling and setting.