Evaluate the benefits to GR of using budgets.

Mark scheme

Marking points from the official mark scheme (Oct/Nov 2020). The mark or mark type is shown in brackets.

1. [K] Budget - plan for sales, income and expenditure for a set period
2. [K] Types of budget: incremental, flexible, zero
3. [K] Variance analysis – comparison of budget with actual
4. [K] Benefits: Motivation
5. [K] Benefits: Target
6. [K] Benefits: Effective management of costs
7. [K] Benefits: Efficient allocation of resources
8. [K] Benefits: Monitor performance
9. [K] Benefits: Improve decision making
10. [K] Benefits: Identify problems through variance analysis
11. [K] Limitations of budgets: Focused on short term
12. [K] Limitations of budgets: May be unrealistic
13. [K] Limitations of budgets: Bias of setter
14. [K] Limitations of budgets: May not account for external changes
15. [APP] Revenue: Adverse variance of $5000
16. [APP] COS: Adverse variance of $1000
17. [APP] Restaurant overheads: Adverse variance of $5000
18. [APP] Profit: Adverse variance of $11 000
19. [APP] Restaurant has no control over Head Office overhead allocation
20. [APP] Use of relevant information in case
21. [APP] Monthly meetings
22. [APP] Problems identified by restaurant manager
23. [AN] Budgets give targets for the restaurants and can be used to measure performance, as in this case. They may help improve efficiency as discussion of the adverse variances can help find solutions.
24. [AN] Could the 'unrealistic' budgets have contributed to higher labour turnover as the restaurant manager puts pressure on employees to achieve the budget set?
25. [AN] A better approach might be to delegate setting of budgets to the restaurant managers. This could increase motivation of managers and result in improved outcomes. The manager might have better knowledge of local conditions and so could set a more realistic budget.
26. [EVAL] Budgets of little value if the restaurant managers were not involved in setting them – were these just handed down from Leff without discussion?
27. [EVAL] Usefulness may depend on: Accuracy
28. [EVAL] Usefulness may depend on: Flexibility as environment is dynamic
29. [EVAL] Usefulness may depend on: Whether managers take them seriously
30. [EVAL] Usefulness may depend on: Who created the budget
31. [EVAL] Setting budgets are an essential part of controlling expenditure within a business.
32. [EVAL] Without figures to monitor progress how would it be possible to know where the business is or to suggest changes that might be made.