Disadvantages Of Departmental Budgeting

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Executive Summary The purpose of this report is to outline the advantages that departmental budgeting can bring to HITS LTD for the upcoming year and why it should be adopted. The main benefits of adopting departmental budgeting are as follows: 1) Aids the company in a profitability review. 2) Aids in the price setting process. 3) Aids in the planning of the company. 4) Aids in the communication and co-ordination of the company. 5) Aids in the motivation of staff and the control of the company. Introduction Essentially budgeting is an estimate of revenue and expenses over a specified future period. This only gives a big picture estimate and doesn’t go into detail about certain departments and their performance; this is why there is a need for HITS Ltd to perform a departmental budget. Departmental budgeting follows the same principles as your standard budgeting technique, but it will allow HITS Ltd to analyse their expenses relating to certain departments and whether your income will be sufficient to cover these expenses. Main Body 1). Aids the company in a profitability review. If HITS Ltd were to just perform a general budget for the company as a whole it is very easy just to compare budgeted profit with actual profit, which can give a false sense of security to HITS. Going a step further and performing a departmental budget will allow for a breakdown of revenue and expenses relating to any department, which will clearly show you their individual profitability. If a
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