Question

Many organizations track budgets on a monthly basis. What are the advantages to tracking budgets on a monthly basis? What disadvantages might exist for tracking budgets on a monthly basis? How do monthly budgets help understand what variance the actual results might have from annual budgeted values?

Answer 1

A budget can be a primary tool for performance study of business for planning and controlling by regular tracking.

Budget is defined as a systematic plan for a business's outgoing expenses and incoming cash flow for a predefined specific time period. The tracking of the budget is the key of success for the company , the tracking can be at different time intervals

Higher the frequency better will be accuracy , the advantages to tracking budgets on a monthly basis are

• Chances of high control
• easy to impliment
• track the prefromance oneasy method
• calculation of variences on the regular short time interval
• ratification are easy to impliment
• high level of monitering of performances

Disadvantage :

• High cost involve
• Wastage of time of top management ( middle level management) in regular tracking
• Very short time for actual judgement of performance
• Varience may be very small in numerical term ( low variance )

monthly budgets help understand many special variance ,Most budget analysts calculate a variance by subtracting the budget figure from the actual spending . The monthly calculation of variance is better than annual variance in some case mentioned below

• sales variance : mainly is season based product
• Working capital variance
• Operting cycle variance
• Cash position variance
• Variances in Inventory
• variance in creditor and debtor position and many more