Describe how budgets can be used to set targets to monitor and control an organisation free essay sample

This report is to discuss the ways in which targets can be set to monitor and control the organisation. Financial resources in a business can be obtained internally such as the profits from last year’s sales, or externally such as a bank loan, having management is these areas can ensure the objectives in an organisation are accomplished they can do this through budgets; What is a budget; an estimate of costs, revenues, and resources over a specified period, reflecting a reading of future financial conditions and goals. Sales budget can be used as a starting point of any budget as it projects; the sales of products made by manufacturing business, and services provided by a service of the business therefore the sales budget monitors these aspects. Production budget can be used as a financial plan about the product in service of being manufactured, this budget then can determine an estimate of how many units will need to be manufactured to meet sales objectives and inventory requirements, therefore enabling a company to track costs. We will write a custom essay sample on Describe how budgets can be used to set targets to monitor and control an organisation or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page Purchases budget determines the amount of money and goods that will need to be purchased to ensure their goals, this is will help the organisation as if too much or too little stock is purchased the company can lose out which in turn helps monitor and control the business effectively. Labour budget determines the direct cost of labour such as wages, salaries, commissions, etc. it also determines the indirect cost of labour such as movement and handling of the product. This is useful for anticipating the number of employees who will be needed to staff the manufacturing area throughout the budget period. This allows management to anticipate hiring needs, as well as when to schedule overtime, and when layoffs are likely. Therefore equating to a more efficient and controlled organisation. Receivables budget determines when you will receive payments from customers made on credit, this is useful as it identifies when you will have funds and you can determine what things you will need to pay and when. Payables budget is the opposite of receivables budget as it identifies what things need to be paid to suppliers, having a payables budget helps achieve an organised business, as you will know exactly what, and when you need to pay to keep the company running and make it profitable. Cash budget determines the cash inflow and outflow, over a specific time period, these cash budgets also determine if there is enough cash to fulfil regular operations and/or whether too much cash is being left in unproductive capacities. These budgets are useful because it can monitor how much credit it can extend to customers before it begins to have liquidity problems therefore producing a more controlled business. When these resources are managed effectively it can improve the business by making sure all areas of the business aren’t losing out and are tracked, to make sure the company doesn’t lose out on sales or buys to many goods, keeping track of employees’ wages and other financial obligations, being able to credit customers and ensure no lose is made and the business doesn’t go into liquidity and help achieve maximum profit within the business. I hope this report has enabled you to understand how budgets can be used to set targets to monitor and control an organisation.