Question

que 1

1. What is your understanding of an annual budget as an important tool in the functioning of planning.
2. Discuss five(5) reasons why an annual budget is a guide to an effective utilisation of resources in an organisation

Answer 1

a) A Budget is a formal plan of action expressed in monetary terms which helps the organization in achieving its objectives. Budgetary control is one of the important activities to be followed by an organization irrespective of its size. A budget helps in understanding the future estimates and helps in achieving strategic business objectives. It is one of the important tools needed in today’s completive world to get strategic competitive advantage. It helps in controlling costs and comparing actual performance with budgeted performance. Budgetary control is essential for policy planning and controls. A Master budget can be prepared which gives budgets for all inventory planning, Sales, purchases, Operating expenses, Cash budget, Income statement and Balance Sheet. Budgets help in putting system and controls in place. Budgets help in understanding business in a better way through effective planning and co-ordination.

b) An Annual budget helps in effective utilization of resources in an organization in below ways:

• Helps in achieving efficiency and economy in various activities and operations of the company
• It helps in bringing divisional and departmental accountability and responsibility
• It helps in business planning and achieving strategic objectives of the firm
• It helps in better implementation of cost management practices through cost control and cost reduction
• It helps in efficient allocation of scarce resources within an organization
• It helps in implementation of performance culture in the organization and makes employees more efficient