Business Finance Introduction: Budgeting Approach
Added on 2021-01-03
11 Pages3410 Words440 Views
BUSINESS FINANCE
INTRODUCTION...........................................................................................................................4Explaining the purpose and process of preparing a budget.......................................................4Demonstrating an application of the traditional budgeting approach for planning the future cost management in the business.................................................................................................6Analyzing the appropriateness of the traditional budgetary system to all or any segment of the business for planning its future form...........................................................................................6CONCLUSION................................................................................................................................7REFERENCES................................................................................................................................8INTRODUCTION...........................................................................................................................9Explaining different planning tools of budgetary control and their advantages and disadvantages...............................................................................................................................9Application of the above methods to the organization..............................................................11Analyzing the most appropriate method of budgetary control for budgeting...........................11CONCLUSION..............................................................................................................................12REFERENCES..............................................................................................................................13
INTRODUCTIONBusiness finance means the credit and the monetary value that is involved in the business. It includes the procurement and optimum use of the funds for carrying the operations of the business efficiently and effectively. The present study is based on the Snappy drinks, an international manufacturer of the energy drinks, producing 60 different ranges of products. Furthermore, the report includes the purposes and the process of framing the budget. It also explains the traditional approach of budgeting and its appropriateness in the overall segment of the Snappy drinks. Explaining the purpose and process of preparing a budgetPurpose- the basic objective for preparing the budget for Snappy drinks is to provide for the centralized control on the functioning of an enterprise with appropriate budgetary system. Budget is prepared with the purpose of ensuring effective control on the cash, sales and inventory of the firm (Peterson and et.al., 2017). It is also essential for the company to prepare the budget is in fixing the responsibilities of several departmental heads and to enhance the operational efficiency of the different divisions of the organization. The main purpose for formulation of the budget is to estimate the future requirements of the funds that are to be invested in business to meet the uncertain financial conditions in the future. For better planning and coordination of the different parts of the business operations, framing of budget is important for Snappy drinks. Process of budgeting-Obtaining Estimates- The first step in the process of budgeting is to obtain the anticipations regarding the sales, expected costs, production level, and resource availability from each of the departments. Under this step the managers estimate activities and the future conditions that will impact or influence on the activities of the Snappy drinks. The discussion and the participation inthis step might be in informal way (Grint, Smolovic Jones and Holt, 2016). The detailed report isprepared of the plan which will have to be submitted to budget committee for the approval. Coordinating Estimates- The next step in the process of budgeting is the budget committee will be evaluating the various plans that are submitted by the Snappy drink. Evaluation is made in order to identify the potentiality in the plans in terms of the overall interest of an enterprise. It is also done to assume the need of the resources, availability of the resources so that fair allocation can be made within different units of the entity. By this coordination between the estimates madein the budget can be ascertain so that the next step of the budgeting process can be effectively met by the firm.
Communicating Budget- After the approval for the each budget plan, the budget is communicated to the responsible managers and concerned departments of the Snappy drinks. The approval by the budget committee is made on the basis of the organizational goal and the availability of the resources in the firm (Baker, 2016). The changes or the modifications needed in the budget if any then it will be made aware to the managers for obtaining their cooperation and the support towards the formulation of the budget. Effective is budgeting is said only when itinvolves better communication between the departmental managers for convincing them about the alterations in budget. Executing budget plan- After communication the final budget is prepared and presented to the concerned managers and it is adopted as a plan for running the operations for the probable budget period. The several service units in the Snappy drinks are needed to facilitate the requiredraw material, facilities, labor and the other resources for carrying out the budget (Duda and Habel, 2018). By this the plan made for the budget is implemented for developing smooth functioning of the operations and to perform the task efficiently as per the budget framed. The execution facilitates the next step that makes the controlling function effective in the management of the business of Snappy drinks.Reporting the progress in relation to budgeted objectives- In the last step of budgeting process, Feedback is taken based on which the performance reports are formulated so that information in relation to the performance of the managers and the top management are achieved in context of the budgeted figures. Such investigation might call for the requirement to prepare the revised budget in a year (Siddikee, 2018). For instance- advise on reducing the production level becauseof decrease in the sales. This feedback can also be utilized as the base for formulating the budget for the coming period or next year. Demonstrating an application of the traditional budgeting approach for planning the future cost management in the businessTraditional budgeting is the method of formulating the budget on the basis of last year’s allocations or keep the previous period budget as a base. In this the current period budget is framed by making adjustments in the prior budget. Adjustment includes like changing the expenses on the basis of the rate of inflation, demand of the consumer and the market situation. The revenues and the cost of the previous year budget forms as an integral part of present year budget (Baker, 2016). Thus, traditional budget includes only those activities that required to be justified from the past year’s budget. Incremental budgeting is similar to traditional budget as it also involves the allocations based on past year with added or increased amount in the current year’s budget. For example- Items20172018Sales400000600000
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