Budgeting allows for a company to set parameters for operations during a specific time period. There...

50.1K

Verified Solution

Question

Accounting

Budgeting allows for a company to set parameters for operationsduring a specific time period. There are many uses for a budgetwithin a company or department. Provide examples of how a budgetmight be used in business and how decision making is affected bythe use of a budget.

Answer & Explanation Solved by verified expert

4.1 Ratings (755 Votes)

Business Budgeting When most people think of budgets they think of a typical household budget given a certain amount of money how much should be allocated to various expenses This system usually works fine for individuals but in the business world there needs to be a lot more involved Determining how much to spend on various expenses is only half the battle The other half is for a company to be able to effectively judge its spending financial performance Regardless of the type of business the ability to gauge performance using budgets is a matter of life and death in the business world Who Uses Budgets Nearly everyone uses budgets in some form From the household budget to the multibillion dollar government budgets theyre a pretty universal tool However a companys budget is a bit more involved Most companies will start with a master or static budget A static budget is a budget with numbers based on planned outputs and inputs for each of the firms divisions Its the first part of budgeting which determines how much a company has and how much it will spend These are projected amounts and the company expects to stay within these limits To figure out the numbers managers make use of economic forecasting methods to determine a realistic static budget Changing Budgets As you may have experienced with your own finances expenses that are not part of the budget often pop up However the static budget acts as a guideline it does not constrain the company to staying within those limits In other words a budget is merely a tool that is used to help make business decisions When it comes down to something that wasnt foreseen when the static budget was put together companies can decide to spend more money or to spend more of it in a different area than originally planned although the static budget will still act as a guideline Budgets can always be changed Using a Budget to Evaluate Performance So what happens when the periods over Its time to determine whether we fell in line with our planned expenditures Thats when a flexible budget is used A flexible budget is a budget with figures that are based on actual output Its then compared to a companys static budget to get variances differences between what level of spending was expected and what actually occurred With a flexible budget budgeted dollar values ie costs or selling See Answer

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:

Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!

Become a Member