Advantages of Using a Master Budget and Benchmarking
There are several methods to estimate the sales required to break even. One of them is the contribution margin method, thanks to which it is possible to calculate the volume of sales required to cover all fixed costs and reach the break-even point (Miller-Nobles & Mattison, 2020). To calculate the sales required to break even, divide the fixed costs by the contribution margin ratio (Miller-Nobles & Mattison, 2020). Another method is the equation, which involves drawing up an equation that includes sales, variable, and fixed costs (Miller-Nobles & Mattison, 2020). In addition, you can use the graphical method to determine the break-even point by plotting charts and determining the point of intersection of the cost and income lines.
Furthermore, master budget and benchmarking are essential for assessing the budget, measuring the company’s potential, and determining the best methods for calculating the sales required to break even. The master budget contains general information about the organization’s current finances and plans for the future, allowing for better coordination and control of financial activities (Miller-Nobles & Mattison, 2020). Benchmarking helps compare an organization’s performance against industry standards (Miller-Nobles & Mattison, 2020). Its use is necessary to identify areas for improvement and set realistic goals.
The Impact of Employee Behavior on Budgeting Practices
In addition, employees play a significant role in the development of the budget. For financial planning to be effective, it is necessary to consider each employee’s interest in the work and motivation (Miller-Nobles & Mattison, 2020). For example, bias, personal motives, and pressure to achieve goals can lead to budget deficits. Participatory budgeting, involving employees in the budgeting process, can help reduce budget deficits and increase employee commitment and accountability.
Applying Course Concepts to Personal Budget Management
One of the concepts learned this week is the “flexible budget.” I usually stick to a fixed budget with well-defined expenses. Nevertheless, it seems that a flexible budget can be more effective within a personal budget. It involves adapting costs and revenues during activities in accordance with emerging needs (Miller-Nobles & Mattison, 2020). This approach can help me deal with unexpected expenses more effectively without causing additional financial pressure.
Reference
Miller-Nobles, T., & Mattison, B. (2020). Horngren’s Financial & Managerial Accounting: The Managerial Chapters (7th ed.). Pearson.