Accountancy Tuition Centre (Overseas Courses) Ltd 2002
1 OBJECTIVES OF BUDGETING1.1 Co-ordination
Of the different activities of an organisation.
Should help achieve
Particularly important in decentralised organisations.
Delegation of responsibility to managers of
eg cost centres, profit centres, investment centres.
Part of responsibility accounting.
Optimal use of scarce resources.
Part of Manufacturing Resource Planning (MRPII)
Budgets provide targets for individuals.
Care must be taken to ensure targets are not too easy or too difficult toachieve or
1.5 Planning and control
Budgets are short term, quantified versions of long term strategic plans.
Control achieved through variance analysis.
Budgets can be used as
for performance evaluation.
However it is difficult to quantify some elements of business performance egcustomer satisfaction, employee morale, innovation.
Communication of corporate plans and objectives.
Should help goal congruence.