Business – 5.5 Budgets – Meaning and purpose of budgets | e-Consult

Two major benefits of using budgets in a manufacturing business are:

• Cost control and efficiency: A production budget sets limits on material, labour and overhead costs, enabling managers to compare actual spending with the budgeted figures. If actual costs exceed the budget, corrective action can be taken promptly, reducing waste and improving efficiency.
• Strategic planning and coordination: Budgets integrate the objectives of different departments (e.g., sales, production, finance) into a single financial plan. This alignment ensures that resources are allocated to meet overall business goals, such as achieving a target profit margin or expanding capacity.