It encompasses systematic analysis and financial forecasts. The forecasts and analysis are based on the application of resources, products and markets. A budget requires the managers to make and it can later be used as a tool for measuring the performance of the operations and the effectiveness of various departments in a firm. There are various approaches applied in budgeting. One of the approaches is the traditional incremental budget and the other one is the zero based budgeting.
CHAPTER INTRODUCTION TO BUDGETS AND FROM PREPARING MASTER BUDGET Budget and advantages of budgets: A budget is (a) the quantitative expression of a proposal plan of action by management for a specified period and (b) an aid to coordinate what needs to be done to implement that plan. A budget includes both financial and non-financial aspects of the plan, and it serves as a blueprint for the company to follow in an upcoming period. A financial budget quantifies management’s expectations regarding income, cash flows, financial position. Advantages of Budget: 1. Promote coordination and communication among subunits within the company 2.
Benefits of Effective Budgeting Source; Author’s work based on Horngren, et al. (2008) Organization budgeting may fall into between extremities. Either the organization assumes the previous year activities would be the same as the budgeted activities, or the organization could assume ZBB, that will not adopts the current activities to continue. Either way, this encourages managers to evaluate the current activities and may modify, add or remove activities (Horngren, et al., 2008). Thus, optimizing the resources.
Firstly, there should be realistic goals set: a company must ration its own resources by setting goals and objectives which are reasonably attainable. Unrealistic projections can cause unreliable records of purchases and/or confusion amongst employees. Research into the previous year is also important. A budget can reflect a clear understanding of past results but also a sense of expected future changes. It can be said that previous results cannot be a definite predictor; they can certainly flag important benchmarks.
12.5 LOT SIZING IN MRP PROCESS Lot sizing (or batching) in material requirements planning (MRP) is the process of modifying the net requirement quantities before they are translated into planned orders in an MRP system. If net requirements were translated directly into planned orders, it would result in manufacturing component schedules and purchasing schedules that did not take any account of the cost of machine setups or the cost of ordering. In other words, making the requirements as they occur on a period‐by‐period basis, otherwise known as the lot‐for‐lot policy, may certainly reduce overall stockholding costs, depending on the size of planning period chosen, but may increase costs incurred through excessive setup and ordering activities
The time series examines previous years’ data and uses than to establish a trend line from the past to the present and then project this line into the future. It is possible that the trend line uses raw data and may not have been adjusted for seasonal factors and other random events. In those situations the sales forecasts are likely to be exaggerated and the consequences can be serious for the lending bank or investor, let alone the company’s management. iii. Therefore it is a common routine for the reader or analyst to establish how the forecasts are arrived at and whether appropriate adjustments have been made for various factors including seasonality and random events.
However, budgeting can play a much more important role than simply limiting spending. Budget is a familiar and very important type of short range plan that is expressed in a numerical terms how the resources of a company can be distributed to attain a desired profit. A budgeting system is one of the oldest instruments of a management control system. Since prepare a budget force a company to determine how much money will be coming in and cost will be incurred, it serves a dual purpose to become a controlling as well as a planning operation. There are many examples of seemingly healthy businesses that failed because managers did not prepare budgets that would have identified problems in future or they failed to monitor and adjust budgets to changing conditions.
This is one of the most essential components in budgeting. Without the forecasted cash flows of the business investment or venture to be assessed, capital budgeting is not possible. And to arrive with reasonable cash flow forecasts, the business should be able to identify the level of sales or demand for the business decision. To achieve this, the business will have to conduct an initial market study for their planned venture. Aside from the sales level, the business should also be able to identify the level of pricing that they will use.
Cost management is known as a process that plan and control budget of any businesses made by an organization. It is also a form of management accounting that helps a business to predict the future expenditures and reduce chances of spending over the limit that has been planned in the budget. It is usually the most challenging tasks for officers whom are experts in accounting and finance because they have to think of the expenditures and benefits of it in a long-term period. Also, we can never predict the economy stability and circumstances. Moreover, it is challenging because having a good budget is known as an essential to any development of an organization whereby having drawbacks in planning a budget may be number one factor of why an organization
What is MCDM: Decision making can be optimised through the utilisation of a decision making structure, optimising value and reducing error. Multi-Criteria Analysis is one such method, it is used in a wide range of applications, from large scale projects in government and business to the every days decisions of individuals. Common forms of decision analysis are cost-effectiveness analysis and cost benefit analysis which, at their core, compare the monetary costs and benefits of alternatives (Dodgson et al., 2009). Such a method is useful and appropriate when, for example, governments are making large scale quantitative decisions which do not involve qualitative decision making. Qualitative aspects in decision-making complicate what is, arguably,