Delivery in day(s): 5
Diploma in Business
Unit Number and Title
Unit 5 Management Accounting
Budgeting is an essential element for the smooth conduct of the business in an organization. The budgets are prepared for determine the needs of the companies regarding the requirement of funding and the effective allocation of the available resources in the operations of the company. The report has been prepared indicating the impact of various types of costs on the business of the organization. The report includes the explanation of the nature and behaviour of the costs along with the description of the various methods of costing. The favourable and adverse variance of cost has been determined and analysed along with the specification of the purpose for which the budgets are prepared in the organizations
Budget is the process of planning the expenses of the company. The budgeting is done in an organization to determine whether the company has sufficient funds to meet the expenses of the organization. The budget has been prepared by the finance department of the company and help in the forecasting of the financial resources requirements of the organization. The budget is the plan of the sales and revenues to be generated for a given period of time (Alino & Schneider, 2012).
There are several purposes for the preparation of the budget;
There are different budgeting methods that are used in an organization. The companies select the appropriate budgeting methods according to the needs and nature of the organization. Some of the methods of budgeting are;
Zero based budgeting: The budget in the zero based budgeting starts from the zero. The process of budgeting in this method starts from zero bases and determining the allocation of the resources in each department of the organization along with the review of the budget on regular intervals. There are several steps that are performed in the zero based budgeting which includes the decision making activities of the managers and the efforts of the managers are focused on the reduction in the costs as well as elimination of duplication of activities (Glass & Prinzivalli, 2014).
The needs of zero based budgeting are;
The decision making process of the organization is improved as the managers are involved in effective decision making regarding the reduction of cost.
Incremental budgeting: For the purpose of the preparation of the incremental budget, the previous budget and the actual performance of the organization is taken into consideration in order to prepare the forecasted budget for the company which focuses on the increments in the cost and the added amount in the budget. The process for the preparation of the incremental budgeting is simple as only incremental changes are added in the new budget in comparison to the budget of the previous year. The incremental method of budgeting is suitable only to those organizations which have the fixed costing and there are not many deviations of cash flows in the operations of the organization (Alino & Schneider, 2012).
The needs of incremental budgeting are;
Notes to cash budget
The budget prepared can’t be chosen because the overall variance is unfavourable. The organisation has to increase its budgets in labour and sales units and price respectively such that we can there do not exist budget deviation or labour has to work efficiently and management require skilled labour which in turns reduces labour hours and actual performance get increased and company will get closer to budgets (Lidia&T.G.2014).
The report concludes that budget planning plays an important role in the successful planning of the business strategy. The report explained the performance indicators with the analysis of the variance and the needs and the purpose of the budgets has been explained. The report focuses on the methods that are used for the purpose of preparation of the budgets that depends on the nature of the organizations. The report has also determined the liquidity position of ABC Limited and the uses of the standard costing have been specified. Presentation of data with the uses of tables and graphs has been presented in the report.
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