budgets

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A budget is a financial or quantatitive statement which is prepared and approved prior to a defined period of time, of the policy to be pursued during that period for the purpose of attaining a given objective. It may include income, expenditure and the employment of capital. Budgets are of great significance for any business as they help in plannin, controlling, motivating,coordinating,communicating and evalluating by comparing the actual with budgeted results and taking corrective action for adverse variances.


The Harlton fabrication Company should introduce a budgetary control system which refers to the process of preparing a budget, controllling the actual performance against the budget and taking corrective action during the budget period to remedy adverse deviations. There are several types of budgets which make it easier for any business to run smoothlly financially. First of all, there is a fixed budget which is designed to remain unchanged ireespective of the volume of output or turnover attaned and the theres also a flexible budget which by recognising the difference in behaviour between fixed and variable costs in relation to flouctuations in output or turnover, is designed to change appropriately with such fluctuations. A capital budget has to do with the long-term provision of resources including fixed assets, working capital and issues of equity and loan capital, whereas an operating budget ahs to do with production, sales and day-to-day cash budgets that includes sales received during the period.


Every company which has a budgetary control will have to prepare a master budget that is prepared from and summarises all the functional budgets. In the case of Harlton Fabrication, the production, marketing and finance and administrational departments will each have a separate functional budget prepared as a functional budget which is a budget of income oe expenditure to,or the responsibilty of, a particular function.




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