Business – 5.5 Budgets – Meaning and purpose of budgets | e-Consult
5.5 Budgets – Meaning and purpose of budgets (1 questions)
Login to see all questions.
Click on a question to view the answer
Advantages
- Provides a clear financial target, aligning departmental activities with overall corporate objectives.
- Facilitates early identification of deviations, allowing timely corrective action.
- Encourages cost consciousness and efficient resource utilisation among staff.
Limitations
- Budgets are based on assumptions; unexpected market changes can render them unrealistic, leading to misleading performance signals.
- Over‑emphasis on meeting budget figures may encourage short‑term thinking or unethical behaviour (e.g., over‑stocking, under‑reporting costs).
- Preparation and monitoring of detailed budgets consume significant time and managerial resources, which may outweigh the benefits for smaller operations.