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Budget Analysis Paper

474 Words2 Pages

A budget is a company's planned revenues and expenses. Preparing a budget means determining in advance expected sales an estimated price. Therefore, the company determines how it will price its products and services, considering several factors such as that of competitors, related expenditures, and the pricing strategy or scheme utilized by the company.
Given the intended price in which the product will be offered, the company determines in advance how the target buyers react in terms of their volume of purchases. The estimated price and the corresponding volume of demand will comprise the company's revenues, which are a part of the budget.
Aside from the price and volume, part of the budget is an estimate of the related expenses that is incurred in order to generate the estimated volume of sales. …show more content…

Hence, budgets and the corresponding variances provide a basis in determining how effective people were in carrying out plans.
In evaluating the performance of employees in relation to meeting budgets, volumes of sales variances are not enough indicators. A Large volume of sales does not always mean that the employee (e.g. sales person) performed well. It is possible that such a large volume was not caused by an increased number of buyers or increase in the number of units sold. It caused only by an increase in price. Hence, in totality, the sales person was not effective in generating sales. Both price and volume variances must be considered in evaluating the performance of an employee

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