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It is a quantitative plan for acquiring and using resources over a time period. Actual spending compared to the budget to make sure the plan is being followed. Individuals create household budgets for their income and expenditures for food, clothing, housing, and so on. Negotiation is crucial to determine whether budget becomes an effective tool or just a clerical exercise.
Every company must make decisions related to the products and services that it sells. For example, each year Procter & Gamble must decide how to allocate its marketing budget across 23 brands that each generates over $1 billion in sales.
Helps managers how they should respond to any expected changes like.
Managerial decisions involve several functions i.e. marketing, production, commercial; finance and human resource. Co-ordinate various inter related aspects of decision making, otherwise, manager makes wrong decisions.
Southwest Airlines must decide what ticket prices to establish for each of its thousands of flights per day. General Motors must decide whether to discontinue certain models of automobiles.
FedEx must decide whether to expand its services into new markets across the globe. Hewlett-Packard must decide what price discounts to offer corporate clients that purchase large volumes of its products.
In an economic downturn, a manufacturer might have to decide whether to eliminate one 8-hour shift at three plants or to close one plant.
In recent years, criticisms of traditional budgeting have attracted much publicity for instances:
Apart from the criticism, budget is alive and important for planning, control and performance measurement.
An independent review of budget is to identify its functionality and basic assumptions/ guidelines under which it has drawn, further, we will see supporting information and evidences for backup support of reported budget.