Question

• What are the objectives of budgeting? What are some of the advantages of an effective budgeting process?

Answer 1

Solution. When an organization decides to enter in business, it needs to study and forecast various activities in order to minimize costs and maximize profits. This process involves budget preparation with objectives of same enlisted below:

a)It distributes/allocates organization's available funds on different levels of activities.

b)It facilitates in calculating variances(if any) by comparing actual budget reports from standard budget prepared.

c)It facilitates in drawing financial planning with organization's objectives.

Advantages of an effective budgeting process are enlisted below:

a)It provides estimates of costs involved and revenue earning capacity of such investment in different levels of activities of the organization which facilitates in decision making.

b)It allocates available capital of the organization to optimum use to meet its objectives.