Operational Budget

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A budget is a formal plan that estimates the plausible expenditures and income for an organization over a certain amount of time. Seeing that budgets are such a valuable tool for planning and having a control of a company’s finances, budgeting affects nearly every type of organization. Typically a small business contributes in budgeting to determine the most efficient and effective approach making money and increasing its asset base. A financial plan can help a company use its restricted finances in a way that best utilizes existing business opportunities. An operational budget involves the development of monetary tactics for the organization, generally for a year. Though annual budgets need not be subdivided into shorter terms, monthly and/or quarterly budgets are particularly constructive for foreseeing cash needs and for evaluating actual knowledge with plan. An extensive master budget entails planning for all stages of the operation: sales, marketing, manufacturing, engineering and general administration. “Once a budget has been established comparisons may be made with actual results and variances analyzed, budgetary control. Flexible budgetary techniques may also be used to update figures or test alternative courses of action. The advantages and disadvantages of an operating budget are: Advantages| Disadvantages|

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Commitment and motivation of managers| The time taken and the cost of this time| Looks at alternatives| May be unexpected events that affect later results| Sets targets and standards| Information must remain confidential| If predicted volumes change, new sales and costs can be predicted using flexible budget techniques| Managers may treat cost budgets as separate from revenues, and hence over-spend if revenues are not achieved| Looks forward and considers both internal and external factors| | In order to be...
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