Types of budgets - Historical figures 2.2.4
Historical figures - budget initially based on the figures from previous period (year) Extrapolation - means assuring that past trends will continue into the future. It must be used with care because changes in business conditions may require adjustments to be made. For an existing business it may be best to produce a budget based on previous figures, such as last year's sales and costs. This approach uses extrapolation to model the next year's targets As the product moves through its life cycle, it places different demands on budgets, for example less adverting may be needed. Allowances need to be made for inflation, to ensure estimates are correct Sales figures can be unpredictable Costs may not be the same Economic variables such as the business cycle can affect budget figures Unforeseen events such as the euro crisis can affect budgets. A historical budget is realistic in that it is based on actual results, HOWEVER, circumstances may have changed (e.g. new ...