Question

In essay format with at least two sources in APA format.

Briefly describe your understanding of how and why managers use budgets.

What types of budget approaches are typically used in for-profit companies as opposed to non-profit organizations? Explain at least two different budget methods.

Describe a minimum of two ways in which a personal budget is similar to a business budget. Elaborate your response.

Answer 1

Use of Budget by Manager:-

1. It helps in the review of current trends and framing of future policies.

2. It creates suitable conditions for he implementation of standard costing system in a business organisation.

3. It is powerful instrument used by business houses for the control of their expenditures.

4. Helps in integration and cordination of activities of different departments.

Types of Budget approach used by profit companies in compare to non-profit companies:-

• Master budget is used by profit companies because it is central planning tool that management uses to direct the activities of a company, as well as to judge the performance of its various departments.
• Operating Budget, Cash Flow Budget, Financial budget etc are used in profit companies

Two different Budget Methods.

1. Flexible Budget :- It is prepared by using marginal costing and so mixed costs (semi variable cost ) must be split into their fixed and variable components. Industries such as soft drink industry, fashion industry etc use flexible budget approach.

2. Zero Base Budgeting :- It is the method of budgeting which requires each cost element to be specifically justified, as though the activities to which the budget relates were being undertaken for the first time.

Similarity between personal budget and business budget.

1. both personal as well business budget have certain set objectives.

2. In both budget we should identify source of income.

3. Also assign amount for expenses, allocate savings and track progress and make adjustment if necessary.