Question

1) What is your understanding of a budget. How can budgeting be useful to an organization? Please use your own words and do not provide a textbook definition of budgets. Consider the concept and interrelationships of budgeting, variance analysis and strategy. Searching in our 1004 page pdf book you will see highlights of the personal perspective to budget low so you come in high, budget high

Answer 1

Annual Operating plan, Budgeting, Projections etc are common names given to the financial planing for the defined period of time for a company.

Budgeting is providing the financial benchmarking for its various spendings and other financial related matters such as sales, productions, variable and fixed costs, unit cost, operation and management expenses, capital expenditure etc.

company's vision and mission could be achieved with the help of setting objectives and the objectives can be measured with the help of the budgeting exercise. It provides the detailed projections component wise for future outcomes. It is basically the estimations of future income and expenses over a period of time.

at the end of the period, with the help of budget prepared at the starting of the period and with the help of variance analysis which consists of comparing the actual achievement with the set one, we could identify the growth and success of the company and accordingly work for future by eliminating excess expenses and by improving the areas which got diverted during the period.

Various types of budget are:

Sales budget

production budget

operational budget

capex budget