Budgeting is one of the most important processes when running a business. Manager often tells the accountant to prepare budgets so that he or she can capitalize on the budgets and makes decision. In this case, Letsgo Travel Trailer’s manager needs to prepare the budgets for the sake of the company. By doing so, there are many advantages that the company can gain.
First of all, there are many reasons for Letsgo Travel Trailer to prepare the budgets. Sale Budget and Production budget can let the staffs concerned have the clear vision and know that how many units should they sell or produce in the specific times. Since there are goals that shall be attained, the employees will do their best to do so. Alongside this, the manager can also know the real situation of the company. Given that Sale Budget, Production Budget and Cash Budget shows the situation and performance of the company in particular aspects. The user of it can estimate the future income of the company based on the past experience or prediction of future so that they may implement some new strategies to deal with the problems encountered. Moreover, the manager can make some changes after looking into the estimation of future and past experience so that he can adjust the company’s performance in increasing the sales in some periods or decreasing the price of the products when facing the keen competition. Furthermore, preparing budget is the requirement of Bank in this case. Bank needs the cash budget of the company to support the requested loan amount.
Apart from the advantages brought from preparing budgets, there are many disadvantages attached. Past experience and future estimation is not reliable. The past experience isn’t free from any difficulty arises such as inflation and competition. If the company focus on the budgets and make decision, the company may suffer losses. In the same token, the estimation for future may lead to the wrong decision. Cost and income may derivate...
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