Labour Variances 🟡: Rate Variance, Efficiency Variance.

Overhead Variances 🟡: Variable OH (Exp. & Eff.), Fixed OH (Exp. & Vol.).

🟢 Aids cost control and performance evaluation.

🔴 Difficult to set accurate standards; can be demotivating if standards are too tight.

Budget 🔵: A quantitative statement, for a defined period of time, of the policy to be pursued for the purpose of attaining a given objective.
Budgetary Control 🔵: Establishment of budgets relating to the responsibilities of executives to the requirements of a policy and the continuous comparison of actual with budgeted results, either to secure by individual action the objective of that policy or to provide a basis for its revision.
🟢 Aids planning, coordination, and control.
🔴 Can be rigid; time-consuming to prepare.

Functional Budgets: Sales, Production, Material, Labour, Overheads, Cash, Capital Expenditure.
Master Budget: Consolidated summary of all functional budgets.
Fixed Budget: Prepared for a single level of activity.
Flexible Budget: Prepared for various levels of activity.
Zero Base Budgeting (ZBB): (See below)

Purpose: Forecasts cash inflows and outflows over a specific period.
Components: Opening Balance + Cash Receipts (sales, collections) - Cash Payments (purchases, expenses, wages) = Closing Balance.
🟢 Helps manage liquidity, identify surplus/deficit.
🔴 Based on forecasts, so accuracy depends on assumptions.

Definition: A budget designed to change in relation to the level of activity actually attained.
Key: Separates costs into fixed and variable components.
🟢 More realistic for performance evaluation than fixed budgets.
🟢 Useful for variance analysis.

Definition 🔵: A method of budgeting where all activities are re-evaluated each time a budget is set. Starting from a 'zero base', managers must justify every item of expenditure.
Process:
1. Identify Decision Units.
2. Analyze Decision Packages (identifying alternative ways to perform activity).
3. Rank Decision Packages.
4. Allocate Resources.
🟢 Encourages efficiency, re-evaluation of activities.
🔴 Time-consuming, requires extensive documentation.