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Budgeting in Management Accounting

   

Added on  2021-02-21

8 Pages2231 Words37 Views
Management accounting

Table of ContentsINTRODUCTION...........................................................................................................................2MAIN BODY...................................................................................................................................2CONCLUSION................................................................................................................................6REFERENCES................................................................................................................................71

INTRODUCTIONBudget refers to a preparation of monetary plan to spend money properly. It is used todetermine whether there will be enough money to complete the project or not (Honggowati andet.al., 2017). It mainly focus on allocation of resources, coordination, planning, monitoring andcontrolling. It is beneficial for management of company to take strategic decisions and forecastbusiness performance, income and expenses. Budgeting process is used to forecast expenses andincome of future so that managers are prepared for the uncertainty. There are various types ofbudgets such as operational budget, sales budget, production, labour, material, fixed overheadsand variable overheads. These budgets is beneficial for companies to complete all the businessactivities within the predetermined budget. Report will contain issues regarding traditionalbudgeting methods. Traditional budgeting refers to creating a budget by taking previous year'sbudget as a base. It adjust the expenses like inflation rate, market situation and demand ofconsumers. There are various drawbacks of traditional methods such as that it is time consumingand there is chance of human error. Managers started to feel that this type of budgeting isineffective. Traditional budgeting methods has led to new ways of budgeting i.e. activity basedbudgeting and balanced score card. MAIN BODYBudget is prepared by taking the previous year's budget as a base and forecast the futureyear budget. The main purpose of preparing the budget is to estimate the expenses and income. Itis used to make correct decisions and actions whenever needed. It is beneficial for company toevaluate the actual performance with the expected performance. Budget is also referred to as atool for decision making. It is beneficial for companies to keep their financial statement positives(Klychova, 2015). Objectives for budgetingAllocation of resources: One of the main objective of preparing a budget is to allocateall the resources properly. Companies use budgeting as a tool through which resourceslike funds, technology and market information are allocated to various business activities.Change in the marketing condition changes the preparation of budget. By studying theups and downs in the cash flow, company is able to decide where to allocate the funds. Ithelps in determining where to allocate the resources (Abernethy and Wallis, 2018). 2

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