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Finance & Accounting
Pages 10 (2510 words)
Financial Management and Performance Analysis Name Institution Tutor Date Budget gives the management an opportunity to plan, monitor and evaluate its activities towards achievement of a specific goal. Budgeting is a means through which management communicates its goals and sets strategies to achieve those goals…
Managers should focus on what should be done in order to avoid variance in the future rather than concentrating on actions to correct variances in the budget. Management determines the performance of the organization by conducting budget control or variance analysis (Ramji & Geoffrey, 2002, p. 21). These approaches support management by exception by the fact that it identifies critical areas of organization performance which does not follow the management expectations. Although budget is very essential in the organization, the success of the organization is determined by the effort of the management to in making decisions that will ensure the attainment of the organization’s goals. A. Behavioural issues in budgetary reporting system When actual performance of the business differs from the planned or budgeted activities this is referred to as variance. Variance may be favourable if it shows gain or beneficial position such as an increase in actual income or profits or a decrease in actual expenditure than the standard cost (Sherman, 2011, p. 87). On the other hand, variance may be termed unfavourable if the actual cost exceeds standard cost, or if actual profit/income falls below the budgeted income/profit. It is the cause and consequences of variance that matters, and whether the variance is favourable or unfavourable (Hampton, 2009, p. 57). ...
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