Production budget is made subordinate to sales budget and a material procurement budget is subordinate to production budget, hence planning overlaps with all resources and a situation of bottlenecks due to overlapping does not arise. Because, a quantitative statement in the form of a budget provides maximum possible clarity in understanding the future demands from each functional area of a business.Īpart from basic planning, co-ordination among functional areas is also achieved with the use of budgets. Exercise of planning is said to be semi-finished without preparation of budgets. Budgets with future forecasts are vital tools to accomplish the task of planning. Planning : Planning is looking before you leap. Thus budgets are prepared for each functional area like sales, production, material procurement and so on based on the needs of planning and control possibilities. For example, a quarterly sales budget is filled with sales in quantity to be sold in each of the next 4 quarter of a year. Thus, without controlling possibilities, planning will be meaning less and budgets helps in both planning and controlling.Ī budget in business context is a quantitative statement prepared for select period in future. Otherwise, considering the deviation at the end of a plan period, will a costly exercise, since amount of deviation will be very high in terms of dollar amounts. If production budget is lagging behind the sales budget, actions like working on overtime etc can be considered to support the planning process and keep things going as per plan. Thus, there is a chance for identification of variances at the early possible time and actions to control the deviations from planned performance is possible. ORACLEs Hyperion Planning software package is regarded as one of the worlds most advanced systems for the carrying out of budgetary planning and control. Controlling : Budgets, being in quantitative terms, provides a basis for comparing the actual performance with budget targets.
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