Performance Budgeting

 Performance budget is a budget that reflects the input of resources and the output of services for each unit of an organization. This type of budget is commonly used by the government to show the link between the funds provided to the public and the outcome of these services.

Performance budget is a way to allocate resources to achieve specific objectives based on program goals and measured results. It comprises three elements:

          the result (final outcome)

          the strategy (different ways to achieve the final outcome)

          activity/outputs (what is actually done to achieve the final outcome)

Objectives of Budgeting

 A company use budgeting to accomplish goals for growth and sustainability with the finance at hand. The major objectives are as follows:

1. To provide a realistic estimate of income & expenses and financial position for a period

2. To provide a coordinated plan of action which is design to achieve the estimates

3. To provide a comparison of actual results with those budgeted and an

analysis  and  interpretation  of  deviations  by  areas  of  responsibility  to indicate courses of corrective actions and to lead to improvement in future plans

4. To  provide  a  guide  for  management decisions  in  adjusting  plans  and objectives

5. To provide a ready basis for making forecasts during the budget period to guide management in making day to day decisions

Factor Affecting Working Capital Requirement

 A firm should have neither low nor high working capital. Low working capital involves more risk and more returns, high working capital involves less risk and less returns. Risk here refers to technical insolvency                   while returns refer to increased profits/ earnings. The amount of working capital is determined by a wide variety of factors.

1. Nature of the business

2. Size of the business

3. Length of period of manufacture

4. Methods of purchase and sale of commodities

5. Converting working assets into cash

6. Seasonal variation in business

7. Risk in business

8. Size of labor force

9. Price level changes

10. Rate of turnover

11. State of business activity

12. Business policy