Management Accounting and Control Coursework assignment: write a 2,500 word essay on the following topic: "The budget has historically played center stage in most organizations' systems of management...

Budgeting 1
Budgeting
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Budgeting 2

Executive Summary
Budgeting is considered as one of the significant concept in business management. It is
widely used in profitable as well as non-profitable organizations. Preparation of budget is
significant for the profitability and success of any organization. The external and internal
environment is very tu
ulent and it becomes necessary for firms to prepare themselves for the
changing environment. Budgeting is method of forecasting the future. A company prepares
various budgets to estimate its activities in future.
As per Dawn (2003), in Europe 69% of the companies operate their regular activities
with formalized traditional budgeting systems. The advantages from budgeting can be
forecasting of future development in a business and its environment, coordination of activities
and work flow, promotion of communication among departments and motivation of employees
(We
er & Linder, 2005). Budgeting also suffers from various disadvantages, it involves a lot of
time and expense, but at the same time it is very crucial to prepare budgets.
Budgets are used to estimate all the revenues and costs and then plan accordingly.
Planning cannot be done without preparing budgets. Another important use of budgets is that it is
very useful in estimating the performance. Budgets are used as standards and can be compared
with the actual results to calculate the variance. A company can only improve if the actual
performance meets the desired performance. But if there are no budgets, there are no desired
performances estimated by the company. Hence, the company has no scope for improving the
actual results. With budgets, the company can compare standard with actual and then take
necessary control actions.
But considering the present scenario, the budgeting suffers from various limitations and it
is no longer desired by the organizations. This paper will discuss the advantages as well as the
Budgeting 3

limitations of budgeting which includes that it is time and cost consuming, give less reliable and
valuable information, adding little and wasting more resources, encouraging parochial and non-
ethical behavior as well as de-motivating the employees.
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Contents
Introduction ..................................................................................................................................... 5
Budgeting ........................................................................................................................................ 5
Types of Budget .............................................................................................................................. 6
Cash budget ................................................................................................................................. 7
Capital Budget ............................................................................................................................. 7
Operational Budget ..................................................................................................................... 8
Key purpose of Budgeting .............................................................................................................. 8
1. Planning: .............................................................................................................................. 8
2. Facilitating Communication and Coordination:................................................................... 8
3. Allocating Resources: .......................................................................................................... 9
4. Managing Financial and Operational Performance: ............................................................ 9
5. Evaluating Performance and Providing Incentives: ............................................................. 9
Behavioral implications of budget control ...................................................................................... 9
Limitations of Budgeting .............................................................................................................. 10
Conclusion .................................................................................................................................... 12
References ..................................................................................................................................... 13
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Introduction
In today’s world planning is the utmost important tool which is needed by the
organization to move ahead. The organization focuses on setting up the goals which rests on the
profitability and growth of the organization. So to achieve the goals and targets fixed by the
organization, it needs to focus on strategic planning. The management focuses on executing and
implementing strategic planning on a regular basis so as to achieve competitive advantage in
market and to fulfill the goals and targets of the organization. (Bartrum, 2006)
With the proper planning, implementation and execution, the organization can achieve its
fixed goals and targets and attain competitive edge from its competitors. The plans made by the
organization can be short term as well as long term. (Daum, 2004)
Budgeting
Budget is one of the most important concepts in planning. It is as the detailed plan which
is expressed in quantitative or numerical terms and focuses on estimating the purchase and
utilization of different resources during a specified period of time. Budgeting can be said as the
process which aims on developing multiple budgets. It can be said to be an important tool for the...