Question

What is the value of budgeting? Who should prepare the budget(s)? How does the budgeting process begin – where do the numbers come from? How often should the budget be revised? What is the purpose of budget performance reports? How are budget variances calculated? Which budget variances are the most important? How will variances help management assess performance?

Answer 1

value of budgeting

Budgeting is all about planning an organisations goals along with considering for resources. That is, a plan to spend resource to get an expected outcome.

Any Goals with certian plans is easy to attain than doing it as such. This is what budgetting is beneficial for financial activities such as new project,manufacturing,...

Budgeting process begin from

first and formal requirement for budgeting is "Identifying Goals to acheive"

Example: For a business it is individual budget is prepared firstly. then aggregate whole individual budgets to a master budget.

-ie, aa footware manufacturer firstly produce financial budget to check availability of finance(how much cash available to conduct operations) only after that operational budget is prepared. Here Financial Budget is Primary Budget

the numbers come from?

Which is based on type of budgeting. Sometimes may use numbers from past performance of company which is a referance of attainable targets.

In ZERO BASED BUDGETING every expense should be justified for new period. So new figures should have to be derived to form budgetting otherthan past results.

How often should the budget be revised?

Once a target is set it is not a good practice to revise the budget if the conditions existed is not changed much.

If the trend in an industry changed the budget will be outdated so there araises a requirement to revise Budget.And een insituations if it allows to cut down unwanted expenses

Budget performance reports

Budget performance report is done at the end of specific period to asses how well he targets set while budgetting is acheive by the business. Which is an important process for comparing actual results with budgeted

budget variances calculated

Budget variance is the numerical comparison of how actual results deviated from budgets set. Which is calculated by substracting Budgeted from actuls to get Favourable/Adverse Movement.

Budget Variance

There are many type of budget variances such as Direct Cost variances (Direct Raw material,Direct Labour,..)

Indirect Variances

Sales Variance

etc

There Sum of Total Favourable and Adverse(negative) variances is calculated and Reach at the cnclusion how well the project or business is performed.

If it is adverse look for which specific adverse variance affected the most and take preventive measures in the next term of similar operations.

Budgeting is a plan of action to work with referance and helpful to assess how well performed by finding deviations using varianace analysis.