Budgeting

7. Actual Costs

At the end of each month, check how your actual costs compare with the budget forecast.

7.1 Are they higher or lower overall?

7.2 Which fixed costs varied?

Was this a one-off, or will the fixed costs stay at these new levels?

7.3 How should variable costs have differed from budget?

• For example, consider a candle-maker with budgeted sales of 800 candles, using £800 of wax (eg £1 per candle).

7.4 How did variable costs differ from budget?

• If the candle-maker spent £1,100 on wax for 1,000 candles, the business has spent £100 more on wax than it should have. Looking at it another way, the price of wax has risen by ten pence per candle to £1.10. Why? Did the price of wax increase, or was more wax wasted in production?

7.5 Are any of the cost changes permanent?

• For example, if the candle-maker had to use a more expensive supplier for the extra wax. If sales fall to normal levels, the business may be able to use the original supplier for all its wax again, at a cost of £1 per candle.