Question

Give an example of how budgets can help in making business decisions.

Answer 1

The financial plan for future specific course of action in order to fulfill a firm’s goal is budget.

The purpose of a budget must fall under organization’s objective. Suppose a business decision has taken to make profit without increasing the selling price of product. This could only be done if cost minimizes. The budget is to be prepared accordingly. The concern authority has to see which are the areas where cost could be eliminated (like subsidized canteen expenses) and which are the areas where costs could be reduced (like travelling and touring costs, welfare cost, etc).

Once the budget is prepared based on the strict expenses figures, employees and management have to follow that and it makes the decision fruitful.