1. Through budgetary control, the deviations from the predetermined standards are found out and the management is enabled to take suitable corrective action immediately. This minimizes wastage and losses.
2. Budgets improve communication. A plan cannot be put into effect unless it is communicated to those who must carry it out In the process of developing the budgets with those responsible for its implementation, managers can communicate their own objectives and plans most effectively.
3. The budget system helps people learn from past experience. Once. the budget period is over, managers can analyze what occurred, isolate errors and their causes, and take steps to avoid those errors in the next budget period.
4. The budgetary control brings together the activities of various departments in an overall perspective and this promotes cooperation and team spirit among the employees.
5. Since budgets are generally prepared with the consultation of managers at different levels, they provide to the enterprise the fruit of combined wisdom. Lower level managers are motivated in accepting and meeting budgets that they have had a hand in shaping.
6. Budgets make it possible to coordinate the work of the entire organization. In devising budgets, managers take into account information provided by the sub-units of their organization. The interaction between managers and subordinates that takes place during the budget development process helps define and integrate the activities of all members in the organization.
7. The different functional budgets clearly indicate the limits of expenses and also the results to be achieved in a given period. This helps the enterprise in eliminating uncertainties and in having a planned approach for its various activities. This also keeps everybody in the enterprise alert and encourages the optimum use of its resources.
Kavungya answered the question on March 27, 2019 at 05:45
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