Answer in Brief
What is a budgeting process?
- Budgeting is a collective process in which operating units prepare their plans in conformity with corporate goals published by top management.
- Each unit plan is intended to contribute to the achievement of the corporate goals.
- Unit managers prepare projections of sales, operating costs, overhead costs, and capital requirements. They calculate operating profits and returns on the investment they intend to use.
The budget itself is the projection of these values for the next calendar or fiscal year.
In this process, each unit presents its plans and budget to a reviewing upper management panel and may, thereafter, make whatever changes result from instructions or negotiations with the higher level.
Texts presenting, documenting, and defending the rationales underlying the numbers are usually part of the planning document.
Approved budgets then become the road¬map for operations in the coming year. Ideally monthly or quarterly budget reviews track performance against the budget.
As part of such reviews, changes to the budget may be approved. At the end of year managers are judged by their performance against the budget.
Concept: Budgeting and Managing the Finances
Is there an error in this question or solution?