MUSTANG LIMITED

Mustang Limited

Mustang Limited

Importance of Budgeting

The process of budgeting outlines ways to quantify and predict the future in terms of finance and anticipates the future finance needs. Therefore it can be observed that budgeting is placed between the areas of planning and finance. The most tangible decision causes studied by the decision makers are related to budgeting data. It has been utilized in short-term, up to one year of duration for the purpose of planning in operations and in costing. It has also been devised to assist strategic planning with planning that is firm and to develop long term plans such as those based on 5 years (Shah, 2007, pp. 296).

This demonstrates that there is a vital link between operational planning and budgeting and a link also exists between strategic planning and budgeting. However, these three are all different concepts which comprise of different characteristics and factors. Operational planning is known to be a wide variety of practices that occur in various organizations (Donovan, 2005, pp. 21).

Strategic planning is catergorized as an irregular activity taking place at the higher levels of an organization. Budgeting, on the other hand, is a system based on accounting principles that shows a routine and regular pattern which is common to all organizations. Besides the planning role performed by carrying out the process of budgeting, various articles on management accounting persistently place significant on the multi-purpose role of budgeting in the business organization, which is termed as the conventional wisdom in books. There are many different uses of budgeting such as planning, forecasting, communication, co-ordination, motivation and control. In the highly globalised world of today, organizations place special significance on the role which budgeting plays in control of management (Shah, 2007, pp. 348).

Objectives of the organization

It is vital for the organization to achieve the aims and goals it has set. The organization studies the results attained, or achieved through input of individuals and teams in order to meet the strategic goals of the organization (Hlupic, 2003, pp. 17).

The departments of the organization are designed to meet economic and behavioural results that can contribute towards the betterment of the organization. Therefore the organization attempts to involve both, the behaviour and results for the purpose of gaining profits. Behaviours can be defined as 'outcomes in their own aspect', and thus it makes them eligible of being judged other than the results attained. Thus the organization emphasizes on the performance of an individual, the department, the organization as a whole or its parts and processes that are required to manufacture a product or service, along with many other areas (Hlupic, 2003, pp. 22). The process of budgeting is given high importance in this regard as it makes sure that the organizations is succeeding in attaining its desired objectives and goals.

In this case study, it can be seen that the company is suffering extensively from a decline in sales due to severed competition from other companies that are based ...