Question

You are a recent hire at a company. Your manager explains that the company has not used budgets previously. She asks you to explain how budgets can be useful to a manufacturing firm. Create a thorough explanation with examples to persuade your new manager that budgets are important.

Answer 1

Budgeting is the process of creating a plan for your spending. The plan is know as budget.

Usefulness of budget in manufacturing concern are -

• Budget helps to plan the expense and income for the specified period. This ensures that company always have sufficient balance to meet its expenses.
• Budget help in comparision with planned and actual. Thereafter analyzing the gaps.
• Budget forms the base for standard costing etc
• Budget helps to keep you financial on track .
• There are various type of budget that can be prepared by manufacturing concern like purchase budget, cost of good sold budget, production budget. These all help in determining in advance the variuos requirement that a company can have.

Therefore a budget ahould be prepared by the manufacturing concern.