Budgeting the Relevance of Budgets When It Essay

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Budgeting

The relevance of budgets when it comes to the management of organizational operations cannot be overstated. In this text, I discuss the various types of budgets. In so doing, I will make use of a hypothetical company by the name ABC Industries -- a Texas-based manufacturing entity. ABC produces blankets.

Types of Budgets

Budgets can be classified in numerous ways. The classification approach I adopt in this case is largely founded on the nature of an organization and its unique needs. To begin with, budgets can be classified on the basis of production flexibility. Under this classification, budgets could either be fixed or flexible. A fixed budget in the words of DuBrin (2011) "allocates expenditures based on a one-time allocation of resources." On the other hand, a flexible budget according to the author "allows for variation in the use of resources on the basis of activity" (DuBrin, 2011).

Budgets can also be classified on the basis of coverage or function, i.e. financial budget or operating budget. As Hansen, Mowen, and Guan (2009) point out, operating budgets focus on a firm's income generating activities. Such activities include purchasing, production, sales, etc. When it comes to financial budgets, the focus is on cash inflows/receipts and outflows/disbursements (Hansen, Mowen, and Guan, 2009).

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Budgets of this nature are also concerned with not only the financial position but also the results of an entity's operations.

Next, budgets could also be short-term or long-term. This classification seeks to classify budgets on the basis of period. Whereas long-term budgets are prepared to cover longer periods of time, i.e. more than one year; short-term budgets seek to cover a shorter period of time, i.e. A quarter of a year. According to Crosson and Needles (2010), an organization's information needs are the primary determinants of the budget period to be adopted. Examples of long-term budgets in this case include but they are not limited to capital expenditure budgets, etc. On the other hand, cash budgets could be prepared to cover a period of less than one financial year.

The Best Type of Budget for my Selected Company

As I have already pointed out in the introductory section, ABC Industries is a manufacturing entity. In that regard, the type of budget I make use of in this case must be best suited for….....

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