Budget: Management and Budgeting

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Introduction

What Is A Budget?
"A budget is a plan." More specifically, a budget is a plan of action matched by resources required to implement the plan. Budgets generally divide between two broad categories: the operating budget, sometimes known as the "expense" budget and the capital budget. Budget in simple word means a sum of money allocated for a particular purpose. Budget is there in everyone's life, it may be a small or a big one. Budget is a tool which helps in controlling and planning the functions of an organization. It is formalized statements of the goals of an organization stated in financial terms and accomplishes several important functions for managers. It states future projections of revenues, expenses and expected
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Whereas bottom up budgeting method consists of lower level management prepares the budget and submit it to top management for approval. The main task of this level is to formulate and disseminate the goals of the business, evaluate each department and integrate the various budgets submitted by subunits into a total organizational budget.
The budgeting process should be flexible and based upon degree of goal accomplishment during the period and budgets for the next planning period can be adjusted to help the management meet organizational goals. If the goals are changed then the budgets should also be changed.

Traditional Budget
Traditional budgeting is the process of budgeting which is in use for the past many years in the organizations. It is based upon single basis; mostly indirect costs are distributed to all products and services. Often products which have higher volume are over costed. And the lower volume products are often understated. It is incremental in nature; old techniques are used, have a short term view and mainly deal with smaller segments. Traditional budgeting takes no account of the fact that income are uncertain, unplanned things arises, that social, political, economic situations change without warning and stock markets rates moves unpredictably. Traditional budgeting is now outsourced in most organizations. This is due to the effect that budgeting serves
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