![]() ![]() In Zero-Based Budgeting (ZBB), the budget is devised as for a new venture. ![]() The financial budget includes the capital budget, the cash budget, and the budgeted balance sheet. The operating budget includes budgets for sales, production, direct materials, direct labor, factory overhead, ending inventory, cost of goods sold, selling & administrative costs, and income statement. ![]() The master budget has two components: the operating budget and the financial budget. Master budgets form the basis of the control systems of the organizations. The different types of budgets used by organizations are appropriation budget, flexible budgets, capital budgets, and the master budget. When the compensation is linked to the budgets, there is a general tendency for functional units to set lower than expected budgetary goals and targets for themselves and also to use means that may not be in the interests of the organization to achieve these budgetary goals and targets. Budgeting is an internal process and hence lack of cultural similarities will pose a problem in the budget being communicated across subsidiaries of the organization. Participative budgeting is not usually employed in a culture that rates high on power distance, uncertainty avoidance, or masculinity. The four dimensions of national culture are power distance, uncertainty avoidance, individualism/collectivism, and masculinity/femininity. National cultures also influence the way in which budgets are prepared. On the other hand, it also has negative effects as it represents managerial inefficiency and self-interest. Slack is sometimes beneficial as it may help improve creativity, help solve goal conflicts, and also help the management in retaining people. Budgets should therefore be challenging but attainable.īudgetary slack refers to the amount that is budgeted in excess of the actual requirement. On the other hand, if the budget goals are too demanding, there are chances that the employees and managers may resort to unscrupulous means to achieve these goals. Easily attainable budget goals will not trigger enough effort from the employees and managers toward performance. For example, the attainability of budget goals has a significant impact on the behavior of the employees who are required to achieve these goals. Rolling budgets help organizations to control inaccuracies regarding projections and in turn minimize the discrepancies between the standards and the actuals.īudgets influence employee behavior. On the other hand, 'rolling budgets' or 'rolling forecasts' are developed at regular intervals, say after every three months, and forecast performance for a specified time period, say the next twelve to eighteen months. Traditional budgets are generally set at the beginning of every financial year and are followed till the end of the year, even if the information used becomes outdated. Participative budgeting helps in increasing the communication between the top management and the employees. The budgeting process usually uses a combination of both the top-down approach, where the top management decides the budget and passes it on to the lower levels of management, and bottom-up approach, wherein the lower levels of management set the budget and present it to the top management who review it and suggest the required changes before implementation. Budget formulation consists of a series of activities: creating a budget department or appointing a budget controller, developing guidelines for budget preparation, developing budget proposals at the department/ business unit level, developing the budget for the entire organization, determining the budget period and key budget factors, benchmarking the budget, reviewing and approving the budget, monitoring progress, and revising the budget. They should be developed in such a way that they take into account the strategic requirements of each of the functions. Budgets are also forecast tools and make the organization better prepared to adapt to changes in the environment. They are useful in resource allocation where resources are allocated in such a way that the processes which are expected to give the highest returns are given priority. Budgets are used to give an overview of the organization and its operations. Budgeting, as a control tool, provides an action plan to ensure that the organization's actual activities are least deviated from the planned activities. Budgeting refers to the process of designing, implementing, and operating budgets. Budget as an Instrument of Control : Overviewīudgets can be defined as a quantitative statement, for a defined period of time, which may include planned revenues, expenses, assets, liabilities, and cash flows. ![]()
0 Comments
Leave a Reply. |