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Budgeting and forecasting process8/15/2023 ![]() ![]() This figure can be compared with the actual cost of producing personal computers to help evaluate the performance of the personal computer production managers and employees who produce personal computers. For instance, the standard variable cost of producing a personal computer at IBM is a budget figure. Most businesses, however, devise a blueprint for the actions they will take given the foreseeable events that may occur.Ī budget: (1) shows management's operating plans for the coming periods (2) formalizes management's plans in quantitative terms (3) forces all levels of management to think ahead, anticipate results, and take action to remedy possible poor results and (4) may motivate individuals to strive to achieve stated goals.Ĭompanies can use budget-to-actual comparisons to evaluate individual performance. A company that does no planning whatsoever chooses to deal with the future by default and can react to events only as they occur. A company must devise some method to deal with the uncertainty of the future. The budgeting process involves planning for future profitability because earning a reasonable return on resources used is a primary company objective. The financial budgethelps management plan the financing of assets and results in a projected balance sheet. ![]() The planned operating budget helps to plan future earnings and results in a projected income statement. This chapter examines the master budget, which consists of a planned operating budget and a financial budget. Capital budgets evaluate long-term capital projects such as the addition of equipment or the relocation of a plant. Responsibility budgets are designed to judge the performance of an individual segment or manager. A budget is a plan showing the company's objectives and how management intends to acquire and use resources to attain those objectives.Ĭompanies, nonprofit organizations, and governmental units use many different types of budgets. A budget is a tool that managers use to plan and control the use of scarce resources. Control is also necessary to ensure that plans actually are carried out. ![]() Planning alone, however, is insufficient. Time and money are scarce resources to all individuals and organizations the efficient and effective use of these resources requires planning. ![]()
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