Budget Planning and Control A budget is a documented statement of business management’s strategies for a specific period conveyed in different financial terms. A budget is able to assist in guiding a business in its operations. Expanding further on that, it can act as a constraint to control the costs of the day-to-day operations of the business. Management must make sure that measures are put in to place to make certain that the business does not stray from the budget and reduce the variance of actual and planned aspects as much as possible. Budgets are important because they act as the basis for evaluating future performance, promote efficiency, deterring waste, motivate employees and serve as early warning systems. The first importance of budgets is to act as a basis for evaluating future performance. Budget plans enable the determination of sales required to raise funds for implementing the budget. Businesses can also adjust forthcoming expenses based on previous budget variances. Secondly, budgets help companies to promote the efficiency of operations. When a budget is in place, all employees are aware of what is expected of them and each employee knows their duties. This …show more content…
For example, during holidays, demand will rise; however, if Babycakes is using a static budget, the variance of the actual from the budget will be unfavorable. Babycakes should use past data and experience to come up with flexible budgets. In seasons where the demand is low, Babycakes can reduce the level of production and increase production when demand rises. For example in the sales budget, I have prepared, I have taken into account seasonal changes in demand and therefore adopted a new pricing strategy. When demand is high like during Christmas holiday, Babycakes can charge a higher price, but when demand is low, prices can be lowered to ensure maintenance of the current market
Body Glove used a bottom up budgeting process because their main goal was to be entirely debt free as soon as possible to increase operating flexibility, not because they needed it for obtaining lines of credit and loans. This type of budget could have the company to evaluate its own performance and motivate its manager to increase sales and efficiency of the company.
The department of Developmental Education is tasked each year with coming up with the following years budget and this year I was given that task. The Dean has given us a very hard task and that is that we have to cut 10% of our budget for next year. My task is to come up with five strategies that help in reducing our budget by 10% just for the following year, two of them will have to present a permanent change to our current budget and the ones to follow. This was a very tough decision, as many items have to be considered. I have given it a lot of thought and this is what I came up with, I will also explain which one of the strategies I think works best for our department and the institution.
A company's budget serves as a guideline in planning and committing costs in order to meet tactical and strategic goals. Tactical goals such as providing budgetary costs for daily operations, and strategic objectives that include R&D, production, marketing, and distribution are all part of the budgeting process. Serving as a guideline rather than being set in stone, the budget is a snapshot of manager's "best thinking at the time it is prepared." (Marshall, 2003, p.496) The budget is a method in which to reign-in discretionary spending, and will likely show variances between what costs have been anticipated and what costs are actually incurred.
It helps management to carry out proper profit planning work. It creates cost consciousness in the minds of every employee of a business organization (accountlearning 2018). The detriment of variance analysis such as flexible budget variance is that it needs more time to prepare, delays the issuance of financial statements, does not measure revenue variances, and may not be applicable under certain budget models (Bragg, 2017). Additionally, a static budget is not effective for evaluating the performance of cost centers. Similarly, when revenues are much higher than expected, the managers of cost centers have to spend more than the amounts indicated in the baseline static budget, and thus seem to have unfavorable variances, though they are simply doing what is needed to keep up with customer demand (Bragg,
... demand as a function of marketing variables, such as price or promotion. These involve building specialized forecasts such as market response models or cross price elasticity estimates to predict customer behavior at certain price points. By combining these forecasts with calculated price sensitivities and price ratios, a Revenue Management System can then quantify these benefits and develop price optimization strategies to maximize revenue.
Participative Budgeting is the situation in which budgets are designed and set after input from subordinate managers, instead of merely being imposed. The idea behind this sort of budgeting is to assign responsibility to subordinate managers and place a form of personal ownership on the final budget. Nearly two decades of management accounting research has resulted in equivocal findings on the consequences and effects of participative budgeting (Lindquist 1995). Participative budgeting certainly has various advantages, these include the transferral of information from subordinate to superior increased job satisfaction for the subordinate, budgetary responsibility and goal congruence. Its disadvantages include budgetary slack and negative motivation, however it is the conditions in which participative budgeting takes place determines whether the budgeting process is successful. The conditions are dependent on various factors such as the level of participation, level of subordinate influence, the extent to which budgetary slack takes place, volatility, job related information, and the complexity of the budget.
QUESTION ONE: 1.1. Discuss the integrated planning budgeting and accountability system (IPBAS) in the context of a specific department in a healthcare organisation such as a hospital. (15) The integrated planning budgeting and accountability system refers to an internationally recognizes standardizes prescriptive budgeting tool that aims to align government policies, plans and budget. This system focuses on shared vision and critical issues; and financial and infrastructure strength; integration also promises to rationally and efficiently allocate available resources to achieve strategic goals and objectives; and, lastly, promises to improve communication, encourage collaboration, and enable data-driven decision-making (Tsofa, Molyneux
Capital budgeting is one of the primary activities of a company. Most of the company uses capital budgeting for decision making process of selecting and evaluating long-term investment. The company have to make a right decision with respect to investment in fixed asset such as purchasing of new equipment and delivery vehicles, constructing additions to buildings and many more. The decision must be right because of the project involve huge amount of cash outflow and it is committed for many years.
Importance of Preparing a Budget You should learn to run your financial life like a small business with the goal of making a profit (savings) every month. How many successful businesses have you ever heard of that don't prepare annual budgets? In fact, the budgeting process forms the financial backbone of every
Line item budgeting categorizes various expenses and places them in list format on a document for budgetary purposes. This type of budgeting is considered the heartbeat of budgeting due to the systematic method by which it controls revenue and expenses, this is made evident when Tyer and Willand (1992), pointed out “Statutory or administrative controls could be imposed on the transfer of funds from one-line item to another, or between broad categories of expenditure.” According to Schick (1971), “line item budgets were attractive to legislative officials because they did not focus explicit attention on substantive policy issues or choices.”
Budget is combining your income and expenses to decide how much money you are going to spend on an item. Budget is an important step to determine your financial health and financial stability. It’s an important financial tool because it can help plan for expenses, cut cost were unneeded, save for future goals, plan for emergencies that occur inexpediently, and list what you are spending and saving.
Every government entity has a primary goal, which is to be as efficient and effective as possible while expending the smallest amount of resources. In addition, the resources expended cannot be more than the resources received as revenues. The budgeting process is a tool that assists government entities in being both efficient and effective. Before a budget can be adequately prepared, you must first understand the budgeting concept and secondly be knowledgeable of budget types.
It requires an adequate and sound organizational structure, that is, there must be a definite assignment of responsibility for each function of the enterprise. Budgeting compels all the members of management, from the top to bottom to participate in the establishment of goals and plans. Budgeting compels departmental managers to make plans in harmony with the other departments and of the entire enterprise. Budgeting helps the management to put down in figures what is necessary for a satisfactory performance. Budgeting helps the management to plan for the most economical use of labor, material and capital. Budgeting tends to remove the cloud of uncertainty that exists in many organizations, especially among lower levels of management, relative to basic policies and objectives. Budgeting promotes an understanding among members of management of their co-workers' problems. Budgeting force management to give adequate attention to the effects of general business conditions. Budgeting aids in obtaining bank credit as banks commonly require a projection of future operations and cash flows to support
One major concern for many businesses is seasonality. Organizations involved in bathing suit industry, ice-cream, medicine, tea and others face this problem very often. There are periods of time when the demand for a particular product is extremely high. Ice cream for example is a seasonal product that sells mainly during the summer. Ski equipment is gear that sells only during the winter season. There are exceptions of course as medicines and tea. Both can be bought and consumed at any time where as, medicines peak sales in winter and tea also. This does not mean though that the products die during the other seasons. However, it is evident that demand drops. In such cases sales drop too, so does revenue and profits, labor force becomes too much in the organization, costs for supporting depreciating machineries increase especially for the production of limited number of goods, expenses for salaries increase and as a whole the business starts going down. Many businesses face this situation nowadays. The question is how to deal with it. One main way of coping with this problem is cutting expenses.
The national budget is the main instrument through which governments collect resources from the economy, in a sufficient and appropriate manner; and allocate and use those resources responsively, efficiently and effectively (Todorovic & Djordjevic, 2009). The work of public budget has increased extremely more complicated, abstruse and worrying (Hou, 2006, p.730).