Discuss the difference between partial budgeting and gross margin analysis?

Answer 1

Gross margins analysis is primarily used as a form of business benchmarking. It's formula is: turnover - variable costs, and so ignores aspects of overheads. It is a quick, easy method of identifying areas of operational performance that are in need of further investigation.

Partial budgeting is also another cheap, quick method. It's use is for identifying alternative operations (whether it be increasing output, buying new machinery, changing enterprise etc). It interprets (although only scratches the surface) how the profit and loss accounts may be altered by the change, but its key difference to just comparing to proposed a p & l account is that it takes it as an average change per/yr. Gross margins are regulary used as a prerequisite method to using partial budgets as a way of increasing speed of calculation, but other methods can be used.