Questions:
Question 1.Budgeting is a planning and control system. Discuss how budgeting contributes to these two functions of management.
Student Answer: Budgeting serves as a planning and controlling system by documenting the different goals and performance objectives in financial terms, then using such plans throughout the whole year. Furthermore, monthly performances report the comparison of budget results, with actual results. However, to control operations, management must institute appropriate techniques of observation and reporting to determine how actually results get compared to the result of plans. However, management can use a budget to state initially its goals and adjectives in financial terms for a specific period. Budgeting is a part of the company's plan. With no planned budgeting, there would not feasible future for such a company.
Instructor Explanation: Planning involves identifying the activities to be accomplished to achieve the organization's goals. Budgets act as the blueprints for these plans, and communicate the goals throughout the organization. The budget is the plan the organization should follow in order to reach its goals. At the end of the period, the budget can be used as a control instrument by measuring actual performance against the plan. This will allow management to identify problem areas and improve performance in the future.
Question 2. Budgeting and forecasting are both vital to a company's success. Compare and contrast these two elements.
Student Answer: Budgeting is organizing your income and expenses, it allows you to track savings, investments, income, and expenses. Budgeting tells you what is due when and how much income you make. Forecasting sets expected time frames by projecting your budget, so while a budget will tell you when your equipment payment is due, forecasting will tell you when it should be paid off by. Forecasting allows you to set goals while budgets shouldn't be used to make assumptions. A budget is short-term for example month to month while forecasting is long term and allows you to look at where your business is, where you want it to be, and how to get to that goal.
Instructor Explanation: Forecasting involves predicting future values with the objective of reducing risk in decision making, and budgeting involves planning for the future. Forecasts provide the starting point for planning and budgeting. For example, the budgeting process typically starts with sales, which must be forecasted using some quantitative or qualitative technique. The sales forecast is then used to create the sales budget.