Budgeting and leverages

A budget is a plan expressed in numbers: expected sales, production, costs and cash for a coming period. Budgetary control compares actual results with the budget, finds variances and acts on them — a budget nobody checks is just a forecast with pretensions. Leverages measure sensitivity: operating leverage shows how a change in sales moves operating profit, financial leverage shows how a change in operating profit moves earnings per share, and combined leverage shows the total effect. Worked example: contribution 400,000 and EBIT 200,000 give operating leverage of 2 — a 10% rise in sales lifts EBIT by about 20%. Leverage magnifies both gains and losses, which is why highly leveraged firms swing hardest.