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Budget Planning

In: Business and Management

Submitted By urmajesty1983
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M6: Assignment 1 – Budget Planning Explain the following statement and provide an example of how this has been seen in practice: Being significantly under-budget is as bad as being over-budget; we need to come in exactly as planned… One of the key distinct purposes of budgeting is planning. Planning involves developing goals and implementing strategic measures to ensure that these goals are achieved. Being significantly under-budget is a key indication that management has not orchestrated an effective planning process prior to preparing the budget. The variance between being under or over-budget is a signal to management that revenues or spending did not go according to plan. When the variance represents under-spending, it illustrates that resources could have been allocated in other areas to influence more revenue and also to obtain more balanced income statement. In module 5, the company Sweet Technology Company Ltd. is used an example of the effect of change on budgeting and planning. Their company operates on a just-in-time (JIT) system in order to fill the needs for their HDMI cables. If planning for their production budget is properly executed, the company reduces the cost of holding too much excess inventory, as well as the cost of capital to pay for purchases. A balanced production budget illustrates that management has carefully estimated and planned for the number of expected orders of their product. If Sweet Technology is ever under-budgeted for production, it’s an indication that sales have in-turn, significantly decreased and that their resources should be allocated to marketing and researching the cause of the decrease. Companies that are financially savvy perform a variance analysis to identify the reasons that actual figures were over or under-budget. It allows them to either take corrective actions to reduce variances in the future, or so...

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