ACCA Applied Knowledge · Management Accounting · Nature and purpose of budgeting
A manufacturing company prepares an annual budget that sets out the expected sales, costs and resources for each department, and then compares actual results with it each month. Which purpose of budgeting is MOST directly served by the monthly comparison of actual results with the budget?
The control purpose is served most directly. Comparing actual results with the budget each month highlights variances, which lets managers investigate and take corrective action. Coordination, motivation and authorisation are different purposes that do not depend primarily on this actual-versus-budget comparison.
- AControlCorrect
- BAuthorisation
- CMotivation
- DCoordination
Explanation
Comparing actual results with budget identifies variances so that management can take corrective action, which is the control purpose of budgeting. Coordination concerns aligning departmental plans, and motivation concerns setting targets that inspire effort. Authorisation concerns giving approval to spend.
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