ACCA Applied Knowledge · Management Accounting · Nature and purpose of budgeting
Which of the following is the main purpose of a budget in the control process?
The main control purpose of a budget is to provide a benchmark against which actual results are compared, so that variances can be investigated and corrective action taken. Budgets do not alter cost behaviour, remove the need for forecasts or act as ledger records.
- ATo compare actual results with planned results so corrective action can be takenCorrect
- BTo ensure that all costs are treated as variable
- CTo eliminate the need for forecasts
- DTo record transactions in the general ledger
Explanation
Budgets provide a benchmark against which actual performance is compared. Differences (variances) are investigated and corrective action taken. Budgets do not change cost behaviour, replace forecasts or serve as the books of account.
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