Question

In your own words and in detail list and describe the benefits of budgeting in a business. Also list and describe in detail the components of a Master Budget.

Answer 1

Benefits of Budget:

Every Business must be controlled with appropriate limits from time to time in order to achieve the objective of Profit Motive; Planning is an activity which is implemented in form of budget in order to achieve the goals of business by controlling the expenses.

In order to form the budget, It must be formed by taking the previous expenses and add the appropriate inflation and growth rates in the form of percentage in order to form the budget which is exact portion of expenses have to be incurred if such expenses are insufficient then we must seek the reasons for variances and take the appropriate action whether to increase the selling price per unit or per client service in order to reach the goal of profits, Gain of Market share, Survive in hostile environment extra…

It helps in saving the cost or unexpected cost or unavoidable cost in order to meet the profit with each unit of production

It enables to meet to earn the extra money by observing the industry target rates and increasing the selling price.

It help in detecting inflation rates so that we can survive by increasing the price with respect to inflation rates in order to match the expenses with revenues

It helps in organising the funds and projecting the future.,,

It helps in regulating the money with existing funds

Components of Master Budget

They are two Types of Budget in the master budget those are 1.Operational Budget 2.Functional Budget

1.Operational Budget :

It consists of different budgets such as cost of manufacturing budget,Sales budget,production budget,Direct labour and Material Budget ,Overhead Budget,

These used to analyse the expected budgets in both expenses and income and help in controlling the expenses

2.Functional Budget:

It consists of Cash Budget, Projected Profit and loss account and Projected Balance sheet, Expected cash flow budget

These are used in order to manage the cash and raise the monies if it is required

These two major budgets are essential in order to control the expenses and plan the production in order to achieve the goal of required profit or survive in the market by fixing the appropriate selling price.