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I understand that management of Walker Company is considering establishing a budgeting system.This memorandum describes a budgeting system and explains the benefits of such a system.A budgeting system involves the development of forecasts of revenues and expenses for a future period.These forecasts are used to plan future sales, purchasing, production, and investing activities.The information provided by the system enables management to make better decisions about the nature and extent of these activities.
Variance analysis may be used in conjunction with an effective budgeting system.Variance analysis involves analyzing differences between actual and budgeted amounts.It is used to determine the cause of these differences.For example, if material costs are not as expected, variance analysis attempts to determine how much of the variance resulted from over or under use of materials and how much resulted from higher or lower prices paid for materials.This allows the company to take necessary corrective actions to improve operations.
As you can see, the information provided by an effective budgeting and variance analysis system can provide significant information to improve management decisions.If you desire additional information about budgeting and variance analysis, please contact me.
Keywords: budgeting, system, forecasts, revenues, expenses, future, vanriance, analysis, cause, decisions