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Planning - the budgetary process makes managers consider future plans carefully, so
that realistic targets can be set.
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Effective allocation of resources - budgets can be an effective way of making sure
that the business does not spend more resources than it has access to.
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Coordination - discussion about the allocation of resources Co different departments
and divisions requires coordination between these departments. Once budgets have been agreed, people will have to work effectively together if targets set are to be achieved.
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Modifying - if there is evidence to suggest that the objective cannot be reached and
that the budget is unrealistic, then either the plan or the way of working towards it must be changed.
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Assessing performance - once the budgeted period has ended, variance analysis will
be used to compare actual performance with the original budgets.
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Stages in setting budgets
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Cost centre: section of a business, such as a department, to which costs can be allocated or charged.
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Profit centre: section of a business to which both costs and revenues can be allocated.
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