Budget Analysis Paper

The Budget Analysis
Why do we use budgets? Well, as individuals if we did not use budgets then we would not have enough money to spend it on the things we love to do. Therefore, there is no difference in the business world; a budget is a plan that helps organizations achieve their financial and strategic goals (Nobles, Mattison, & Matsumura, 2014, p. 1316). However, a budget is not all about crunching numbers together; it is a process that will be discussed in detail that addresses the potential reasoning around their variances and why companies choose whether to “make” or “buy” a product in-house. Along with the pros and cons that companies should adopt to aid in nonfinancial performance measures that will cause an impact on the efficiencies
Companies should make alterations regularly based on growth, actual income, gross revenues, and any expenditures for things like material, and overhead. Companies re-evaluating their budget regularly allows them to identify and repair those potential problems before they end up falling short, costing them more money and time (Vitez, 2016). For instance, if Peyton’s raw material usage continues to exceed the budget without being addressed, then Peyton could fall short of paying their bills. Therefore, updating the budget regularly to manage their cash flow will enable companies like Peyton Approved to be flexible, prepare future budgets more accurate, and identify those areas that need action taken to be able to achieve their goals in the next budget
Nonfinancial performance measures contribute to evaluating achievement, the company objectives and developing a strategy. Thus, in the case of Peyton Approved, they could adopt a balanced scorecard. “A balanced scorecard is a performance evaluation system that requires management to consider both financial and operational performance measures (Nobles, Mattison, & Matsumura, 2014, p. 1478)”. A balanced scorecard is a great way for companies to encourage communication, internal efficiency, and innovation that provides a picture so the company can see if they are meeting their objectives. However, one downside to using a balanced scorecard it does consume a lot of time in the planning process. Other measurements companies could use, are surveys to measure customer satisfaction, innovation, and product quality. However, nonfinancial measures are not the most effective way to offer the most accurate results compared to accounting measures; they can lack reliability and are difficult to implement (Ittner & Larcker, 1998). As with all business decisions when using any non-financial or financial performance measures, the ethical consideration that a company should consider is that all measurements need to be specific, value driven, support the company's objectives, and are measurable actions that drive top and bottom line business