ACCA Applied Knowledge · Management Accounting · Nature and purpose of budgeting
Which one of the following is an objective of budgeting that is best described as ensuring that managers understand the targets expected of them and the plans of other parts of the organisation?
The objective is communication. The budget tells each manager what is expected of them and shows the plans of other departments and senior management. Evaluation judges performance, resource allocation distributes resources, and forecasting predicts future outcomes rather than conveying agreed targets.
- ACommunicationCorrect
- BEvaluation
- CResource allocation
- DForecasting
Explanation
Communication means the budget tells managers what is expected and informs them of the plans of other departments and senior management. Evaluation concerns judging performance, resource allocation concerns distributing scarce resources, and forecasting is a prediction rather than a planned target.
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