Question

Question 2: (20 points): Explain the importance of budgets in planning for the decision makers.

Answer 1

MEANING OF BUDGET

• budget is an estimation or future income and expenditures . it means expenses and gains of a particular period of time is estimated in advance for the decison making process .
• it is made for the definite period of time say monthly ,quartely ,half yearly, yearly.
• budgets are revised everytime after the end of definite period .
• it is a type of financial plan which be either short term or long term .
• budget is an inseperable part of any department of organisation.every department needs to pre determined their expenses and gains for the futher planning and fund procurement.
• it can be made by any person,team or group of people,government ,organisation,business etc. anyone who wants to spend money needs to make a budget .
• budgets are essesntial part in the smoooth functioning of any business.it contributes to the effective and efficient working of business.
  
  THERE ARE MANY TYPES OF BUDGET BASED ON DIFFERENT CATEGORIES
  main categories of budget are :
• budgets based on flexibilty
  FIXED BUDGETS
  FLEXIBLE BUDGETS
• budgets based on time
  LONG TERM BUDGET
  SHORT TERM BUDGET
• budget based on funcions
  MASTER BUDGET
  FUNCTIONAL BUDGET
• budget based on condition
  BASIC BUDGET
  CURRENT BUDGET
  
  EXPLANATION ON TYPES OF BUDGET .
  
• FIXED BUDGET - fixed budgets are those type of budget in the organisation which dont change with the fluctuations in the level of production and output. they are unflexible and it is assume that situations will remainn static .
• FLEXIBLE BUDGET-flexible budgets are those budgets which vary with the level of output in the organisation . they are highly flexible and designed in such a way that they change according to the situations .
  in flexible budget costs are classified as fixed cost ,variable cost and semi variable cost .
• LONG TERM BUDGET -long term budgets are those budgets which are made for a period more than 1 year. the definite period exceed 12 months .they are more uncertain budgets as estimation of income nd expenses for more than 1 month is quite a tough task .market conditions are not perfectly prectable in long term.
• SHORT TERM BUDGET- this is the type of budget in which budgets are prepare for the definite specified periods of 1 year or less say quaterly or half yearly . they are less uncertain and have practical value .they are made for urgent implementation.
• MASTER BUDGET- it means this the budget whch includes all the other functional budgets such as production,purchase,sales,cash etc..it is a summary of all the budgets and shows an overall performance of business.
• FUNCTIONAL BUDGET- it is type of budget which includes separate budget for separate department and functions of organisation.they contribute to the master budget.
  it includes budget of specific functions like :
  
  production budget
  cash budget
  sales budget
  purchase budget
  research and expenditure budget
  overheads budget
  capital expenditure budget ,etc
• BASIC BUDGET -basic budgets are more like of long term budget ,they contains guidelines for the preparation of short term budget.
• 
  CURRENT BUDGET-it is like short term budget made for immediate implementation in business.
  
  
  IMPORTANCE OF BUDGET IN PLANNING FOR DECISION MAKERS
  budgets are the one of the most critical and crucial step for the success and smooth functions of any business.they are the estimated values  that guides the decision of decision makers.
  budgets act as standards for the performance of functions of business.
  they set the guidelines and a way to the working of business.

• .the main objective of making budget is to estimate fund requirements for a business.
  in budget organsisation estimates revenue and losses and the required funds needed for the running of business.
• forecasting of funds , allocation of available funds is the essence of budgets which act as a backbone for any business.
  
  budgets gives the overview of available funds and an estimation funds need to be proccured .it helps -the decision makers to decide the mode of financing to be adopted for the procurement of necessary fund .decision on which mode of finance to be used depends highly on amount of funds needed which is provided by budgets.
  
  budgets act as standard and benchmark for the business itself and it enables the most reruired feature that is comparison .budget enables the comparison of actual performance with standard performance and to encourage required persons to take decsion for corrective action regarding deviations(if there is any).comparison of perfomance is crucial and most important step to find out the efficency anf effectiveness of strategies and plans. budgets enables organisation to focus on areas which are lacking and to take corrective action for the better functioning
  
  budgets provides every qualitative information required say sales target needed to achieve desired profit, output to be produced to meet the demand of the product easily ,funds needed for capital expenditure ,amount required for daily function of busiess, staff requirement ,staff planning etc.
• majorily  it helps decision makers in :
  
  1- REQUIREMENT OF FUNDS
  2-PROCUREMENT OF FUNDS
  3-ALLOCATION OF FUNDS
  4-ADJUSTING STRATEGIES
  5-RESPONSIBILITY FIXATION
  6-TOOL OF PLANNING,AND CONTROLLING
  7-GOAL MAP FOR THE BUSINESS
  
  
  
  BUDGETS ARE THAT PART OF THE BUSIENSS THAT DOESNT ASSURE YOU SUCCESS BUT THEY CAN PREVENT YOU FROM GETTING FAIL .THEY ARE THE BACKBONE OF BUSINESS AND EVERY DECISION IS  AFFECTED BY THEM.IT HELPS IN ESTIMATING REQUIREMENTS OF BUSINESS WHICH AVOID THE BUSINESS CHAOS IN RELATION TO FUNDS.
  IT PROVIDES ALL KINDS OF QUANTITATIVE SUPPORT TO BOOST THE FUNCTIONING OF BUSINESS .