Budget Management Analysis in Budgeting One of Essay

  • Length: 5 pages
  • Sources: 3
  • Subject: Economics
  • Type: Essay
  • Paper: #19311808

Excerpt from Essay :

Budget Management Analysis

In budgeting, one of the major challenges is accurately predicting the profit margins of a firm. This is because there are uncertainties from changes in the economy and their industry. These factors could adversely affect their earnings. To improve accuracy, accounting personnel must use tools and strategies that will enhance analysis. This will be accomplished by focusing on: tactics for managing budgets, comparing results with expectations and recommending three benchmarking techniques. Together, these elements will provide insights as to the best approaches for controlling the budget. (Kimmel, 2009)

Determine specific strategies to manage budgets within forecasts.

A common issue with any kind of budget is managing expenses. This is because costs will inadvertently rise, as there will be impacts from inflation. When this happens, the firm's profit margins are negatively affected. To prevent this there must be strategies developed that are focusing on intelligently controlling spending and increasing revenues. Some specific approaches that could be used in achieving these objectives include: expense, revenue and profit budgets. ("Operating Budgets," 2005) (Burrow, 2009)

An expense budget is when there is a focus on all of the costs over a select period of time. During this process, there are three different areas which are examined to include: fixed, variable and discretionary spending. Fixed expenses are those costs that will remain consistent. Variable disbursements are looking at those outlays that can become volatile. While discretionary expenditures are studying non-essential purchases that are made by the company. The combination of the elements is providing actuaries with tight controls in the firm's spending. This can help to manage the budget within forecasts, by limiting expenses to those areas that are most essential for the success of its operations. When this happens, they are able to reduce waste and increase productivity through effectively controlling costs. ("Operating Budgets," 2005) (Burrow, 2009)

A revenue budget identifies how a firm can be able to increase its earnings in specific areas. This is used to provide goals that various teams and departments will work towards achieving. These figures are continually updated to reflect how close or far away they are from reaching different objectives. This helps a company to manage their budgets within their forecasts (by identifying specific practices which could improve efficiency). Over the course of time, this prevents the firm from wasting resources on activities that will not produce beneficial results for the organization. ("Operating Budgets," 2005) (Burrow, 2009)

A profit budget is studying the expenses and revenues of a firm. This is accomplished by categorizing and compiling the information in a single report (i.e. The balance sheet). It is used to determine the net profit of the company and how expenditures are impacting their operating results. This is the point that executives can make the final resource allocation. The way that this helps a corporation to manage its budget, is by determining the best tactics for most efficiently utilizing working capital and resources. This allows the firm to focus on those areas that will increase productivity and reduce costs. ("Operating Budgets," 2005) (Burrow, 2009)

Compare five to seven expense results with budget expectations, and describe possible reasons for variance.

The five different expenses within a firm's budget expectations include: production, marketing, fixed, wholesale and distribution costs. The production costs are looking at the total amounts of spending to create the final merchandise or service. This is subject to variances as the prices for related materials can increase (which is directly impacting these expenditures). (Kimmel, 2009)

Marketing costs are what is spent by the firm in promoting themselves to customers. The possible variances in these areas are mainly from an increase in advertising rates and the fees charged by the company's public relations firm. This can make budget expectations too conservative by not accounting for these changes. (Kimmel, 2009)

Fixed costs are those expenditures that will remain consistent. A possible variance is there could be an increase in interest rates or inflation. This will impact the firm's ability to control their expenses. The way that this is influencing budget expectations, is to make the outlook too conservative. (Kimmel, 2009)

Wholesale prices will impact the firm's ability to produce the final product or service. The expenses for raw materials and other resources will affect their bottom line results.…

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