Question

Budgets are an integral part of management control systems. Evaluate this statement with real life example.                                                                                                                                        

Answer 1

Budgeting converts objectives to organized set of actions having expectations of results. It leads to coordination and provide standard which helps in evaluating performance. Budget includes planning, coordination, target setting, and evaluation. It motivates behaviour towards the achievement of goals.  Therefore, budgets are considered as an integral part of management.

In our real life, before the next month starts, we prepare budget regarding the expenses which are confirm to be incurred in future. We prepare a list regarding how much expenses are to be done, how much revenue will be earned, how much is to be saved, etc. This particular list is a 'Budget'. Our future actions are prepared according to the goals. This budget immensely helps in the management of house expenses and revenue. If this will not be prepared, it will lead to choas among the family members. Maybe excess expenses could also be incurred and no savings would be there for future. Therefore, Budgeting leads to proper control. That is why Budgeting is considered as integral part of management control systems.