Executive Summary

This assignment outlines the practices of effective budget in two entirely different businesses and the importance of effective working capital management in a manufacturing company.

The first part of this paper describe that how the budget is exercised in two businesses where one of the business operates in a static market place and another one business operates in a very dynamic environment. Traditional approach of budgeting and budgetary control is still widely used by most companies throughout the world despite of limitations but In current very fast innovative modern environment, traditional budgeting approach is not only budgeting model there are some effective alternatives budgeting models that business are using to fulfill the modern requirements of company’s strategy such as: activity based budgeting, zero based budgeting and beyond budgeting approaches.

I describe each of budgeting method that how can such models help the modern company more efficiently with their budgeting and budgetary control.

The second part of this paper describes how a working capital cycle plays an important role in a manufacturing business and how each of cycle can be improved individually such as inventory, trade debtors, trade creditors and cash to achieve optimal profit for the company.

Budget and Budgeting

“A budget is a plan which is expressed in financial and or more general quantitative terms that extends forward for a period into the future.’’ (Gowthorpe, 2003. p 457.)

A budget was first introduced in the 1920s as a financial tool to manage costs and cash flows of any large industrial organisation. It was stated from the (Johnson, 1996) that the companies began to use budgets during the 1960s to dictate what people needed to do.

(Pandey, 2003) defines that budget as a short term financial plan of an organisation