Planning and budgeting are essential for management control. Planning consists of developing the objectives, timetables, and performance standards needed to implement the organization’s strategy and assigning individual accountability for results.
Budgeting provides a basis for planning, control and performance measurement for most of company which involves identifying, prioritizing, acquiring, and allocating the resource needed to carry out the plan. The importance of budgeting is emphasized by an old saying “Failing to plan, is like planning to fail.”
A clear statement of goals and objectives provides direction and motivation to individuals and groups. Short-term budget and plans enable movement towards achieving long term goals and objectives. …show more content…
This requires decision on the part of the management. The management accounting helps the management through the techniques of marginal costing, capital budgeting, differential costing to select the best alternative which will maximize the profits of the business.
There is the sort of decision that involve uncertainty which means many of the facts may be unknown; complexity as meaning of there can be many or interrelated factors to consider. The high-risk consequences are the impact of the decision may be significant. There may be various alternative, each with its own set of uncertainties and consequences which is alternative. And the last element is interpersonal issues is need to predict that how different people will …show more content…
Standard costs are often a part of a manufacturer’s annual profit plan and operating budgets. Standard costs will be established for the following year’s direct materials, direct labor, and manufacturing overhead. Variance is a comparison of actual with the standard, calculation and analysis of variance, in order to know the reasons and to pinpoint the responsibility and to take remedial action so that adverse things may not happen again. This aspect is necessary to have cost control.
Analysis of variance is the quantitative investigation of the difference between actual and planned behavior. Variances can be computed for both costs and revenues. This analysis is used to maintain control over a business. For example, if the budget for sales to be $10,000 and actual sales are $8,000, Variance analysis yields a difference of