Setting budgets involve research and negotiation

• Setting income budget


  1. Research and predict sales going up and down through the year

  2. Make good prediction of sales revenue
• Setting expenditure budget for production


  1. Research how labour costs, raw materials costs, taxes and inflation are going to go up over the year

  2. Figure out costs of producing volume of product they think they're going to sell
• Business's objectives

  • Affect predicted sales revenue and cost of sales
  • Might allocate more of expenditure budget to marketing
• Annual budgets agreed by

  1. Negotiation

  2. Budget holders have say in setting their budgets
• Budgets

  • Should stretch abilities of business, but must be achievable
  • Unrealistically high income budgets or low expenditure budgets will demotivate staff