1.- List and explain 3 Essentials of effective budgeting for a company. Explain the importance of...

1.- List and explain 3 Essentials of effective budgeting for a company. Explain the importance of effective budgeting (100 to 200 words)

2.- Explain how to compute a production budget. What inventory account is being budgeted using the production budget? Provide an example of a production budget. (50 - 100 words)

Expert Solution

1. Essential of effective Budgeting for a company:-

a) Forecasting:- Business forecast is the base of budgets.When most profitable combinations of forecasts are selected, they become budgets.

b) Availability of Standard Information:- It is essential that sufficient and proper relevent data should be made available to each department or a company.

c) Good Reporting System:- An effective budgeting for a company requires the presence of good feedback system. In the budget period , only actual performance should not recorded, but it present a variation of actual performance with the budgeted performance.

Importance of effective Budgeting:-

Budgeting is the process of creating a plan to spend your money.Budgeting is important because it helps to control spending, track expenses, and save more money. Also, budgeting can help you make better financial decisions, prepare for emergencies and stay focused on your long-term financial goals.

a) Budgeting estimates revenue, plans expenditure and restricts any spending that is not part of the plan

b) Budgeting ensures that money is allocated to those things that support the strategic objectives of the business

2. Production budget= Budgeted ssles unit + Closing stock of finished goods - Opening stock of finished goods.

The finished goods inventory account is being budgeted using the production budget.

Example of the Production Budget:-

Suppose a company sales 12000 units @ 100 p.u.

The position of inventories are as under:

Opening Finished goods is 400 units

Closing Finished Goods is 200 units

Solve:- Production Budget

(i) Sales units 12000

(ii) Add:- Closing Finished Goods in units 200

(iii) Less:- Opening Finished goods in units 400

Production units = 11800 units

ekkarill92 answered 2 years ago

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