Question

What are budget assumptions and what is their relationship to business coordination? 80–100 words

Answer 1

Solution:

Budget Assumption:

It is a process where analysis is made to arrive at an assumption. There are reasonable assumptions made to come with the budget for the company (To be as close as possible and realistic). The assumption made to conclude the budget for the company is called as budget assumption. Following are the budget assumption considered.

1. Assumption on Income: The assumption of the income of business. A business is a going concern and is expected to earn revenue in the near future (or budgeted period). The demand for the product and services of the business determines the expected sales and expected income for the business.
2. Assumption on Expense: There are factors such as inflation etc, that effect the purchasing power of money. While making budget, it is assumed that the expenses will remain unchanged. Expense assumption are the assumption of the cost incurred for the production of goods and services.
3. Being Reasonable: The budget assumptions made should be reasonable. It cannot be accurate but it can be close to being accurate. When making assumption there is always a use of buffer amount to accommodate any fluctuation. The buffer amount is analysed and taken, so that the budget assumption will be close and realistic.
4. Should be Flexible: Uncertain events can bring a huge change in the budget requiring to re-create the budget. Budget should be flexible to accommodate any uncertain events if necessary.

Business Coordination and relationship with budget assumption:

Business coordination is a set of responsibilities in integrating business activities to meet the desired business objectives. The activities are integrated to ensures the optimum use of the business resources in meeting its objective.

Business expectation are analysed and the coordination of the business activities is done to meet the business expectation (or assumptions). The Income expectation, expense expected to incur, being reasonable in achieving the expectation, and being flexible to accommodate any unexpected changes are all part of business coordination of activities.