• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month
Page
  1. 1
    1
  2. 2
    2
  3. 3
    3
  4. 4
    4
  5. 5
    5
  6. 6
    6
  7. 7
    7
  8. 8
    8
  9. 9
    9
  10. 10
    10
  11. 11
    11
  12. 12
    12
  13. 13
    13
  14. 14
    14

Budgeting - A Budget is a plan expressed in financial terms.

Extracts from this document...

Introduction

BUDGETING A Budget is a plan expressed in financial terms. C.I.M.A. defines a budget as 'A plan quantified in monetary terms, prepared prior to a defined period of time... to attain a given objective', A budget is normally for a relatively short period, e.g. 1 year. Purposes of Budgeting A number of purposes of budgeting have been identified. They include: 1. Planning. 2. Resource Allocation. 3. Co-ordination. 4. Control. 5. Communication. 6. Motivation. 7. Performance Evaluation. Budgetary Control This is a system which uses budgets as a means of controlling the activities of the organisation. It has three main aspects:- 1. Planning. 2. Co-ordination. 3. Control. Planning Budgetary planning is the process of preparing detailed, short-term plans for all the functions, departments and activities of the organisation. It is important that the short-term plans and objectives that make up the budget are related to the long-term plan and objectives of the organisation. The budget may be drawn up by preparing an overall budget for the organisation which is then broken down into more detailed budgets for the different parts of the organisation [the top-down approach] or by devising budgets for the various parts of the organisation and then bringing them together to build up the overall budget [the bottom up approach]. Extrapolations, Forecasts and Plans In discussing budgetary planning it is important to distinguish between extrapolations, forecasts and plans. An extrapolation is the continued projection of an existing trend. A forecast will be based on an extrapolation, but is adjusted to take account of any known factors which will affect the trend. A plan involves some intervention by the organisation in order to modify events in such a way as to make it more likely that the organisation's objectives will be achieved. Co-ordination It is vital that the plans of each department are related to each other and are integrated together to make a coherent whole e.g. ...read more.

Middle

Budget periods in excess of one year would be broken down into annual amounts, and the annual amounts would be further sub-divided into monthly accounting periods. Budgets which are compiled for the duration of one year, would similarly be broken down into accounting periods. Having arrived at the amounts for each period, the actual expenditure incurred during a period can be compared with the appropriate Budget and Variances extracted. Types of Budget - There are two basic types of Budget: 1. Operating Budgets - These relate to the day to day operating of the enterprise. Examples: (a) Sales Budget a. Manpower Budgets a. Revenue Expenditure Budgets d. Short Term Cash Budgets 2. Capital Expenditure Budgets - Capital expenditure is expenditure that is committed in the acquisition of long lived [or fixed] assets. These assets take the form of such items as: i. Premises ii. Plant and Machinery iii. Lorries, Vans, Cars iv. Office Equipment [Desks, Typewriters, Computers]. These budgets are inter-related. (See Chart on PXX) Designing and Operating a Budgetary Control System The procedures will vary from one organisation to another, but a general pattern can be established as follows:- 1. Forecasts are made to cover e.g. a. Sales b. Production c. Stocks d. Costs:- i. Production ii. Selling and Distribution iii. Administration iv. Research and Development a. Capital Expenditure a. Cash 2. Alternative combinations of forecasts are compared. Principal budget factor and limiting factors are considered. That combination of forecasts which is most likely to achieve the objective(s) is chosen. 1. Budgets are prepared to cover the items in (1) above. The activities of the organisation are integrated into a complete plan [The Master Budget]. NB It will take a number of attempts before the budget is finalised. Thus budgeting is a reiterative process. Budget Centres Costs are best controlled at the point at which they occur. Suitable areas of control must be selected and they should not be too large. Examples might be workshops in a factory and wards in a hospital. ...read more.

Conclusion

3. The detailed examination of the organisation's structure and cost behaviour necessary for budgeting, highlights strengths and weaknesses and indicates potential areas for cost reduction. 4. Co-ordination between the department and functions of an organisation will be improved by a good budgeting system. 5. The development of routine management in setting budgets and accepting targets should lead to increased motivation. 6. Performance is reported and monitored thus aiding control. 7. Variance analysis reveals the nature of any weaknesses. It indicates areas for further investigation and points to the corrective action to be taken. Limitations of Budgeting These include: .1. The budget system may cause antagonism and poor motivation [due to undue pressure, poor human relations etc]. 2. Variances are frequently due to changed circumstances, poor forecasting etc., rather than management performance. 3. Budgets reflect the current organisation structure which may not be optimal, especially during rapid change. 1. There is a danger of inertia and inflexibility because of an unwillingness to change well established plans. 5. There are considerable difficulties in setting appropriate levels of attainment. 6. There is the problem of time lag in the system [e.g. June's results are not available until late July, are reported in August and are compared to forecast made months earlier]. 7. The technique should not be relied upon as a substitute for good management. Conditions for Successful Budgeting 1. The involvement and support of top management. 2. A clear definition of long term objectives and their communication. Short term plans must be linked to long term objectives. 3. A realistic organisation structure with clearly defined responsibilities. 4. Genuine involvement of managers in all aspects of the budgeting process. 5. An appropriate accounting information system. This requires: i. The recording of performances in relation to responsibilities. ii. Prompt and accurate reporting of results. iii. The ability to provide more detailed information and advice on request. 6. Budgets should be administered in a flexible manner. Significant changes in circumstances should lead to changes in plan. Rigid adherence to budgets which are inappropriate for current conditions leads to loss of credibility and effectiveness. ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our AS and A Level ICT in Business section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related AS and A Level ICT in Business essays

  1. Evaluate the competitive position of RAC Motoring Service in terms of its operations-based strengths ...

    Patrols would be encouraged to do major jobs at the flat rate of GBP10 per vehicle because RAC has adopted the strategy to educate their customers to handle small problems like flat batteries in winter and this has resulted in the reduction of 150,000 incident of this type.

  2. Business Aims and Objectives.

    it offers, whether it provides only goods or only service, or both. Businesses carry out many activities, some produce goods such as cars and furniture. Others offer services such as hairdressing and plumbing. All businesses can be put into groups providing what they do or sell.

  1. Human resources

    and the qualifications that appear to predict success in accomplishing these results. One of the techniques being used increasingly by small companies is the aptitude and personality tests (called psychometric tests). This technique helps small companies to improve selection for new employees and help to improve for self-development by owner-managers themselves.

  2. Nowadays Information System (IS) has become a vital component of successful organisation particularly for ...

    > Cisco Employee Connection has used as an employee intranet in order for employee to enroll in company benefit and file expense. > Having employee technical training online saves company employee time and travel money. > Functions of managers which include the review of employees, sales monitoring, and competition information collecting are all carried online.

  1. Basic concepts (MRP, MRP II and ERP).

    0 STOCK-ON-ORDER 0 STANDARD COST .......... 21.83 ALLOCATED STOCK 0 AVERAGE COST .......... 21.83 SHORTAGES 0 MATERIAL COST .......... 12.45 FREE PHYSICAL STOCK 0 LABOUR COST .......... 3.75 THEORETICAL FREE STOCK 0 OVERHEAD COST .......... 5.63 LATEST COST 0 LATEST COST DATE EXPENSE COST 0 PgDn=Next P=Print Hard Copy End=Done

  2. Business planning

    food from the restaurant, their age group, what they do for a living and why they buy from the restaurant. I have checked other Nigerian restaurant's menu in order to help me decide on setting a reasonable price. In order for me to set a reasonable price, I will ask

  1. kanthal - accounting

    For one, it requires a lot of effort and resources to track each and every customer order. The old system's simplicity is probably the primary reason why the organization did not move to a much more sophisticated accounting system. Furthermore, it will take time to convince the sales force to change their current behaviour.

  2. business plan and organise event

    the school I would need to pay for a white board or screen and I would also need to pay for a projector to display the game. 1.5 - Resources needed human and Physical As I am holding the event within the school, I may not need very many human

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work