Budgets in Manufacturing Companies

7515 Words Nov 25th, 2008 31 Pages
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Budgets in manufacturing companies

Text adapted by Hugues Boisvert, from chapter 11 of the book La comptabilité de management, prise de decision et contrôle, 3e edition, ERPI, 2004, p. 278-292, written by Hugues BOISVERT, Claude laurin and Alexander mersereau (HEC Montreal).

Table of contents

1. Budgets

2. Budgetary styles

3. The budget process in a manufacturing company

4. Comprehensive example of a budgetary process of a manufacturing company

5. Budgetary management challenge

6. Objectives

budgets

1 The origin of budget

The word budget arises from the French
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This is mostly due to the changing nature of organisations in which greater and greater number of middle level managers have acquired specialized business knowledge and decision making authority has become increasingly decentralised.

The uses of budgeting go beyond planning and control. Budgets serve a co-ordination role in assuring that individual plans do not conflict and that product and market coverage is complete. Budgets serve a communication role in that they create a better understanding of the strategy and programmes of the company. Budgets also contribute to the motivation of managers for better performance and to improved job satisfaction since they are integrated into many performance measurement and reward schemes.

In summary, a budget is a detailed plan outlining the acquisition and use of some resources over some given time period. The master budget is a gathering of all company budgets, including the strategic planning, the operational budgets and the financial budgets. It is a comprehensive and integrated business plan setting targets for sales, production, distribution, and financing activities and outlining how these targets will be met. «The business plan is a written summary of what you hope to accomplish by being in business and how the company intend to organise its resources to meet its goal. It is the road map for operating the business and measuring progress along the way.»[6]

3 advantages of budget

Probably the most