Chapter 8, Problem 1Q

Briefly describe why budgetary planning is important to managers.

To determine

Concept introduction:

Budgetary Planning:

Budgetary planning is a very important tool used in business. It is composed of two concepts. One is budget and the other is planning. Budget means forecast in financial terms. Budget can be of any type of cost or expenditure. Planning means deciding what to do, how and when to do beforehand. So, budgetary planning means making a budget and then using it for effective working of an organisation.

The reason budgetary planning is important to managers.

Answer to Problem 1Q

Budgetary planning is important for managers because it helps them in performance evaluation of employees. It provides an overall objective. All the departments can align their activities for the accomplishment of organisation goals. It also helps managers in decision making in required time.

Explanation of Solution

Budgetary planning is a very important tool used by management. It helps them in a lot of ways:

• Performance Evaluation of Employees.
• Providing decision making capabilities to managers.
• Can be used in identifying bottlenecks and shortcomings.
• Resources can be allocated effectively and efficiently by proper budgetary planning.
• Budgetary planning provides an overall objective.
• Responsible accounting also comes by budgetary planning. All employees can be held responsible for their work by managers.
• Managers can set benchmarks for their processes and then compare budgets to perform variance analysis.