Which of the following is an example of the benchmarking function of the budgeting process?

Which of the following is an example of the benchmarking function of a budget?

Answer

A budget demands integrated input from different business units and functions.

Budgeting requires close cooperation between accountants and operational personnel.

Budget figures are used to evaluate the performance of managers.

The budget outlines a specific course of action for the coming period.

Answer

General guidance

Concepts and reason
Budget: The budget is a plan which is prepared for a specific period for expenditures or incomes related to business. The objective to prepare the budget is to compare the estimates belong to specific expenditure or income with the actual figures for the purpose of controlling the cost and reducing the cost.

Benchmarks: It is the point of reference by which the performance of the company can be evaluated. It can be drawn from firm’s own experiences or from other company’s experiences or from environmental regulations.

Fundamentals

Different business unit: The entity can expand their business on a large scale by operating business from different locations. Business running from different locations are considered a unit of the business.

Manager: The post in the entity who has the responsibilities to manage the specific operations of the business or project. For each and every product, project, location, a person is hired at the post of the manager who has to manage the work through coordination with team members.

Step-by-step

Step 1 of 2

A budget demand to integrate the inputs from different units of business and functions is an example of the coordination and communication function of a budget.

Budgeting does not require close teamwork between operational personnel and accountants.

The budget outlines a specific course of action for the future period is an example of the planning function of a budget.

A budget can be prepared for a particular unit, product or project. It is not necessary to integrate all the inputs from different units of business and functions in order to prepare a budget.

Accountants have the role to maintain the books of accounts and inform the management to control the actual performance results of the business. Operation personnel has the role to perform the project operations according to the task assigned by the respective managers. There is no need for close cooperation between accountant and operation personnel to prepare the budget. It is the responsibility of managers.

The budget is not prepared for specific course of action for the future period. It is prepared for the process followed by production. Production, sales, purchase are the categories for which the budget has been prepared.

Step 2 of 2

Benchmarks are the point of reference by which the performance of the company can be evaluated. It can be drawn from firm’s own experiences or from other company’s experiences or from environmental regulations. So, by using the budget figures, the performance of the managers can be evaluated. As the performance is being measured so it is the benchmarking function of the budget.

Therefore, an example of benchmarking function of a budget is- a budget includes the figures which evaluate the performance of managers.

A budget includes the figures which evaluate the performance of managers is an example of the benchmarking function of a budget.


The budget has been prepared with the objective to compare the actual performance with budgeted performance. Manager of the different process such as production manager performance will be evaluated through the estimated figures in the production budget with the actual units produced. It is one of the optimum manners to judge the performance of each and every manager and the team by comparing the budget figures with actual performance.

Answer

A budget includes the figures which evaluate the performance of managers is an example of the benchmarking function of a budget.

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