{"id":911,"date":"2021-04-01T00:16:42","date_gmt":"2021-04-01T00:16:42","guid":{"rendered":"https:\/\/courses.lumenlearning.com\/wm-managerialaccounting\/?post_type=chapter&p=911"},"modified":"2021-08-15T20:29:28","modified_gmt":"2021-08-15T20:29:28","slug":"equivalent-units","status":"publish","type":"chapter","link":"https:\/\/courses.lumenlearning.com\/wm-managerialaccounting\/chapter\/equivalent-units\/","title":{"raw":"Introduction to Budgeting","rendered":"Introduction to Budgeting"},"content":{"raw":"

What you will learn to do: identify objectives, procedures, and limitations of budgeting<\/h2>\r\n\"PeopleBudgeting<\/strong> involves the coordination of financial and nonfinancial planning to satisfy organizational goals and objectives. No foolproof method exists for preparing an effective budget. However, budget makers should carefully consider the conditions that follow:\r\n

Top management support<\/h3>\r\nAll management levels must be aware of the budget\u2019s importance to the company and must know that the budget has top management\u2019s support. Top management, then, must clearly state long-range goals and broad objectives. These goals and objectives must be communicated throughout the organization. Long-range goals include the expected quality of products or services, growth rates in sales and earnings, and percentage-of-market targets. Overemphasis on the mechanics of the budgeting process should be avoided.\r\n

Participation<\/h3>\r\nManagement uses budgets to show how it intends to acquire and use resources to achieve the company\u2019s long-range goals. Employees are more likely to strive toward organizational goals if they participate in setting them and in preparing budgets. Often, employees have significant information that could help in preparing a meaningful budget and may be motivated to perform their own functions within budget constraints if they are committed to achieving organizational goals.\r\n

Communicating results<\/h3>\r\nPeople should be promptly and clearly informed of their progress. Effective communication implies (1) timeliness, (2) reasonable accuracy, and (3) improved understanding. Managers should effectively communicate results so employees can make any necessary adjustments in their performance.\r\n

Flexibility<\/h3>\r\nIf significant basic assumptions underlying the budget change during the year, the planned operating budget should be restated. For control purposes, after the actual level of operations is known, the actual revenues and expenses can be compared to expected performance at that level of operations.\r\n

Follow-up<\/h3>\r\nBudget follow-up and data feedback are part of the control aspect of budgetary control. Since the budgets are dealing with projections and estimates for future operating results and financial positions, managers must continuously check their budgets and correct them if necessary. Often management uses performance reports as a follow-up tool to compare actual results with budgeted results.\r\n\r\nHere is a quick overview of the business budgeting process:\r\n\r\n