Literature Review: Budgeting As An Effective Budget

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Literature review (1000 Words) Budgeting (200 words) Budgeting is an essential tool that encourages organizations to plan ahead. Authors such as Shim & Siegel (2009, p.1) define budget as a “formal expression of plan, goals, and objectives” of the management of all operation that is to be achieved in a given time period. While Horngren et al., (2012, p.184) extends the definition of budgeting by indicating that it is “an aid to coordinate what needs to be done” that is needed to exceute the plan. Therefore, budget generally provides direction to the business. By constructing an effective budget, the organizations would be able to “plan ahead” and “exercise control” buy comparing the actuals and what is expected in the budget (Mowen, et al.,…show more content…
While Mittal (2010) argues that the production budget depends on the expected sales quaintity in the sales budget. Direct Labor Budget Budget based on “the number of unit produces and will work from the require output in units, to calculate the various types of labor needed” (Du Toit, 2007, p. 167). Overhead Budget Also known as “fixed and variable overhead budget ” (Du Toit, 2007, p. 167). Selling and Administration budget The budget provide expected selling and administration expenses for the given period. Similarly, this budgets also consisted of variable and fixed expenses (Weygandt, et al., 2010). Budgeted Income statement Provide the projected and anticipated revenues and expenses from the operations during the budgeted period. The profit plan is formulated from the budgeted income ,thereby utilizing resources, time for that budgeted period (Grossman & Livingstone, 2009). Financial Budgets Budget prepared in terms of monetary value. Further, this financial budgets ensures planning and financing the operating activities of the organizations (Grossman & Livingstone,…show more content…
These percentage rate may derived from the projected inflation rate or consumer price index (Marquis & Huston, 2009). Though it is a simple method of calculation, it requires budgeting experience. However, Doherty, et al. (2014) argues that if current budgets are based on previous year’s budget, incorrect budget of previous would perputuate on the current budget. In comparison, Zero-Based budgeting (ZBB) “avoids the deficiencies of incremental budgeting” (Drury, 2008, p. 376). According to Offical Terminology of CIMA cited in Bhattacharyya (2011, p. 469), ZBB is a method of “budgeting whereby all activities are re-evaluated each time budget is formalated”. Thus, executive who start as Zero budget level every year could justify the costs of the exsisting funtions in contrast to the present and future funtions. This forces departmental manager to prepare budgets. Thus encorages bottom-up approach of

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