Question

Many of you are responsible for either developing a budget or meeting a budget developed for your department. Use your experience or research the topic to answer any three of the following questions.

1. Identify at least three benefits of budgeting in helping managers plan and control a business.
2. How does a budget benefit management in its control function?
3. What is the benefit of continuous budgeting?
4. Why should each department participate in preparing its own budget?
5. How does budgeting help management coordinate and plan business activities?
6. Why is a sales budget so important to the budgeting process?
7. Identify at least two potential negative outcomes of budgeting.

Answer 1

three benefits of budgeting in helping managers plan and control a business:

1. Budgeting helps managers to plan any project or control their business in an effective manner. Budgeting provides a means of controlling income and expenditure of a business. It gives a plan for spending.

2. It provides a basis or yardstick that can be used to measure the performance of the department and an individual in an organization.

3. The uppermost point of budgeting is that it provides a discipline that brings planning to the forefront as a key managerial responsibility.

benefit of continuous budgeting

1. The continuous budgeting concept is usually applied to a twelve-month budget, so there is always a full-year budget in place. So, any deficiencies in work can be rectified instantly.

2. Continuous budgeting reduce the time to reporting. As reporting is done on continuous basis, reporting time is reduced.

3. More time to access performance. Put simply, less time preparing means more time free to evaluate and make smart decisions. The ability to monitor how the budget is progressing on a defined schedule can reveal and a variety of key insights that give you the upper hand.

potential negative outcomes of budgeting

1. Budgets are based on assumptions and if business environment changes rapidly, then results outcomes can be negative.

2. f a department is allowed a certain amount of expenditures and it does not appear that the department will spend all of the funds during the budget period, the department manager may authorize excessive expenditures at the last minute, on the grounds that his budget manager may authorize excessive expenditures at the last minute, on the grounds that his budget tends to make managers believe that they are entitled to a certain amount of funding each year, irrespective of their actual need for the funds.