Budgeting Essay Example | Topics and Well Written Essays - 1000 words - 1

Budgeting - Essay Example Not planning earlier can bring up capacity issues; cash flow issues etc. for the organization. An estimation of costs and revenues is required to know the estimated profit. The profit is not attained in a single day. All days need to be planned to achieve those profits, daily operations are therefore need to be managed; budgeting prepares the managers for the whole day decisions, which he cannot act to on a single day basis. A clear thinking and understanding is developed. Budgeting in advance also helps determine the borrowing requirements, early relationship building with the lender, communicating earlier the borrowing needs. And reasonable budgets and forecasts to repay can build up credibility in the eyes of the lender. Once the borrowing needs are determined and committed in the pipeline, the spending timing and needs are allocated as and where required. The budgeting exercise can become hectic and set accountability for the managers. This leads to driving their focus away from the day to operations but not really. It builds up coordination and integration among the cross functional areas and within everyone in different functions of the organization. Everyone is considered accountable for his or her actions; a sense of ownership develops amongst the employees and hence a company would want its employees to be motivated enough to achieve their and company's goals. This only happens when objectives of both are aligned and employees are motivated enough to achieve the same. These overall benefits in day to day affairs. Major inputs to the master budget and usefulness of each The major inputs to the master budget are operating and the financial budget. Master budget also helps create a linkage between the two afore mentioned budgets. Each of these budgets has their own importance and none can succeed without the other. The operating budget comprises the sales budget, production budget, the direct materials budget, the direct labor budget, the factory overhead budget, the inventory budget, cost of goods sold budget, selling and administrative expense budget, and the budgeted income statement, which is the snapshot of the operations of the organization for a period. Whereas, the financial budget comprises the cash budget, the capital budget, and the budgeted balance sheet. All these inputs on a standalone basis do not have any meaning until seen within the full picture. Sales budget will determine the top line for the company and production budget support sales because it has to be determined how many units are to be produced to support that level of sales. Materials, labor and overhead determine the costs, similarly the selling and administrative expenses. The inventory budget helps in knowing how many units are carried from the earlier period and how many will fulfill the demand for the period. Financial budget takes care of the funding aspect. Why would a company want to create a master budget There are many purposes that a company can serve by developing master