OBJECTIVES OF BUDGETING IN MANAGEMENT ACCOUNTING

1. OBJECTIVES OF
BUDGETING
MADE BY
HIMANI BEHAL 64
SECTIN D

2. Planning
 Companies use a budgeting system to plan for the
business's growth and development over a specified
period of time.
 The person who oversees the budgeting system uses
the document to specify the opportunities and
investments needed as well as their cost.
 For instance, if you own a pizza store and want to
expand through franchise agreements, you would
develop a budgeting system that shows the commercial
space needed for additional operations, the cost for
training new owners, marketing expenses and the
money required to buy additional pizza-making
supplies.

3. Coordination
 Budgeting systems encourage managers and
executives within a company to coordinate and keep
costs manageable throughout the fiscal year.
 Without a budgeting system, managers do not know
the monetary restrictions on their actions or the actions
of their co-workers.
 For instance, the manager of one production
department could use the entire payroll budget for his
own needs, leaving the manager of another department
without the flexibility to hire additional workers. The
budgeting system requires managers to talk with one
another and plan accordingly.

4. CONTROLLING
 Unless and until, actual performance are not compared
with the budgets and control is exercised for off budget
performances. The basic purpose of budgeting stands
defeated.
 Proper reporting to the management is essential and
feedback is to be provided to the employees from time
to time so that corrective steps can be taken to meet
the targets.

5. Resource Allocation
 Efficient resource allocation is one of the major
objectives companies have when developing their
budgeting systems.
 A company has a finite amount of capital and assets it
can devote to operations during the year. The
budgeting system allocates resources across the
company while setting aside enough capital for
unexpected problems.
 For instance, a company could lose inventory to a
natural disaster or some other problem -- an efficient
budgeting system would have capital set aside for a
"rainy day" that allows the company to buy more
inventory without significant revenue loss.

6. Performance Review
 Managers use the company's budgeting system to
determine if the company operates efficiently and within
the confines of its allocated resources.
 If there are many instances in which a department runs
over budget, internal auditors can investigate and find
the source of the problem.
 For example, if the advertising department of a
company goes over budget consistently, an
investigation could show that the company pays too
much for print advertisements in magazines. Budgeting
systems set most of the financial benchmarks to which
employees and managers are compared.