Question 5 : How can budgets be used for ensuring effective managerial control in a large multiplant enterprise? ...

QUESTION 5) How can budgets be used for ensuring effective managerial control in a large multiplant enterprise? What is budgetary control? How are budget used in controlling and what are the limitations .

ANSWER : 

 Anticipated goals, both long-term and short-term. Many firms at this stage conduct a situational analysis that involves examining their strengths and weaknesses and the external opportunities available and the threats that they might face from competitors. This common analysis is often labeled as SWOT.

After performing the situational analysis, the organization identifies potential strategies that could enable achievement of its goals. Finally, the company will create, initiate, and monitor both long-term and short-term plans.

There are many advantages to budgeting, including:

Communication

Budgeting is a formal method to communicate a company’s plans to its internal stakeholders, such as executives, department managers, and others who have an interest in—or responsibility for—monitoring the company’s performance.

Budgeting requires managers to plan for both revenues and expenses.

 Planning

Preparing a budget requires managers to consider and evaluate .The assumptions used to prepare the budget. Long-term financial goals. Short-term financial goals. The company’s position in the market.

How each department supports the strategic plan.

Preparing a budget requires departments to work together to

Determine realizable sales goals. Compute the manufacturing or other requirements necessary to meet the sales goals.Solve bottlenecks that are predicted by the budget.

Allocate resources so they can be used effectively to meet the sales and manufacturing goals.

Compare forecasted or flexible budgets with actual results.

The plan for Big Bad Bikes is to introduce itself to the trainer market with a sales price of $70 for the first two quarters of the year and then raise the price to $75 per unit. The marketing department estimates that sales will be 1,000 units for the first two quarters, 1,500 for the third quarter, and 2,500 per quarter through the second year. Management will work with each department to communicate goals and build a budget based on the sales plan. The resulting budget can be evaluated by all departments involved.

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