Question

Most every firm has a budget. In many cases, however, firms use them inappropriately. In extreme cases, the way the budget is used by the firm might actually encourage incorrect decisions. In this discussion, you will get a better feel for how to appropriately use budgets as a guide.

Explain why budgeting is important for a firm. Do you think that a firm’s budget should ever be violated (exceeded)? Explain your rationale.

Answer 1

Budgeting is very important for a firm because budgeting helps the firm in knowing of their projected estimation of various operational figures and then it will help them in order to compare them with actual, so that they can know the variance between the actual and the standard, and they can work upon the differential to better their performance in the long run.

Budgets are always futuristic in nature and they are helpful in determination of a future and they are also helpful in production of various figures, which can help the organisation to structure its growth and the comparison of actual with the standard, would be helpful in order to take the corrective measures in the long run, because this will help in knowing the reasons for underperformance of the company through ascertainment of variances.

yes, the budget of a firm should be violated and it should be flexible in nature because the uncertainty can never be predicted in the future, and firm should be flexible enough to change it future budgetary projections in order to you have a better adaptation to the future scenarios.