Respond to these two peers in conversational way
A budget is an estimate of expenses that may be spent within a certain period of time. It is important for companies to plan how they will spend their money to ensure that they will have enough money for their necessities. Additionally, creating a budget can help keep a company out of debt, as well as assist a company who is already in debt.
A flexible budget is one that can be adapted by managers based on expense changes that vary in a company, such as volume or activity. An issue with this budget is that creating this type of budget can be very time consuming for managers, which can lead to factors such as overshadowing and lack of value (Bragg, 2018).
A participative budget is one that is created within the company and is reviewed by multiple participants in the company. According to Steven Bragg, problems that can arise with this budget is “a tendency for participants to adopt a conservative budget with extra expense padding, so that they are reasonably assured of achieving what they predict in the budget”. Expenses that may not be related to the business will be taken out of the budget in order for the company to come out as being aligned with the proposed budget.
second peer Budgeting is a plan for achieving the financial and operational goals of an organization. It helps managers ensure that spending limits are adequate. This control is important because excessive spending can have unfavorable impact on overall profits.
Flexible budget adjusts with in volume or activity. This type of budget is useful in variable cost environments such as a retail environment. Overhead can be treated as fixed cost and the cost of merchandise directly linked to revenue. A flexible budget can be used as a tool to measure performance of managers. This approach improves the formulation process. Although the flexible budget is a good tool, it can be difficult to formulate and administer. With this budget there is no comparison of budgeted to actual revenues In some companies this budget would not be applicable because they have so few variable cost. They have massive fixed overhead that does not vary in response to any type of activity. These are serious issues that tend to restrict its usage.
Participative budgeting is a process where the people impacted by the budget is involved in its creation. This bottom-up approach is more achievable in that it is better for morale, and employees put greater efforts into achieving what they predicted in the budget. The downside to this approach is that it does not take high-level strategic considerations into account. Since this budget involves larger number of employees it takes longer to create, and the cost associated is high.
Budgets can bring financial and operational benefits. Understanding budget techniques can help managers avoid some common pitfalls such as inaccuracies. inflexibility in decision-making and not focusing on the real issues like customers.