Page 149 - P1 Integrated Workbook STUDENT 2018

Budgeting

The purposes of budgeting

1.1 What is it?

A quantitative or financial plan relating to the future. It can be for the company as a
whole or for departments or functions or products or for resources such as cash,
materials, labour, etc. It is usually for one year or less.

1.2 Why budget?

 Planning it forces management to look ahead and anticipate problems.

 Control it allows for the calculation of variances and highlights when the system
is out of control.

 Communication it helps communicate plans to budget holders and employees.

 Co-ordination it ensures that all functions work towards the same goals.

 Evaluation managerial performance is possible via variance analysis.

 Motivation budget performance is often linked to rewards.

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