Reference no: EM132502109

Question 1: Discuss the use of budgets in planning and control.

Point 1: A firm's growth must be carefully guided by its leadership to ensure all factors of expansion are considered. For example, if a firm grows production too quickly, there may not be enough salesmen to move the product or warehouse space to store it, leading to bottlenecks. In many organizations, the budget committee creates formal documents that delineate the organization/s plans, which are called budgets (Jiambalvo, 2016). Budgets enable managers to see the full scope of effects that result from their decisions, allowing them to coordinate with the various departments of the organization to avoid bottlenecks.

Point 2: Budgets also provide a backstop or control in the event a chosen course of action has unintended consequences. Managers are able to observe costs as they occur and step in if costs diverge from budget. Budgets are produced for each department and are separated into various expenses such as production, labor, and overhead. Master budgets encompass all of the smaller budgets and provide an overview for managers to see the effect of decisions on the various budgets across the firm.