Share
Explore BrainMass

Critically discuss these statements, technical terms.

You have over heard the following statements:

a) 'A budget is a forecast of what is expected to happen in a business during the next year.'

b) 'Monthly budgets must be prepared with a column for each month so that you can see the whole year at a glance, month by month'

c) 'Budgets are OK but they stifle all initiative. No manager worth employing would work for a business that seeks to control through budgets.'

d) 'Any sensible person would start with the sales budget and build up the other budgets from there.'

Required:

Critically discuss these statements, explaining any technical terms.

Solution Preview

Please refer to the attached file for the response.

Critically discuss these statements, explaining any technical terms.
You have over heard the following statements:

BUDGETS

a) 'A budget is a forecast of what is expected to happen in a business during the next year.'

A budget is a forecast of what is expected to happen in a business not only during the next year but even beyond. Actually, it is a forecast of future events. The first year is possibly the starting point but extends several years in advance, depending on the variation in sales, as caused by business fluctuations.
To be able to forecast future events, a manager may start with analysis of past trends. A continuous increasing trend that happened in the past may indicate a possible increasing trend in the future. Hence, a past trend may be carried over to the future. On the other hand, decreasing trend in the past may indicate a possible negative future outcome.
In addition to analysis of past trend, a manager must also pose realistic assumptions in relation to economic and business conditions. Hence, past trend coupled with realistic assumptions will guide a manager in making forecast or in preparing a budget.

According to Scott (1999), a budget performs three basic functions of the firm. These include:
1. It indicates the amount and timing of the firm's need for future financing.
2. It provides a basis for taking corrective action in the event budgeted figures do not match actual or realized figures.
3. It provides a basis for ...

Solution Summary

The expert critically discusses statements with technical terms.

$2.19