Solved advantages and disadvantages of budgeting

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Solved advantages and disadvantages of budgeting

Question 1: (120 words)

 List and explain at least four advantages and three disadvantages of budgeting and give examples for each.

Advantages of Budgeting

  • Budgeting enables a business owner to manage financial resources more effectively
  • It allows for the proper allocation of resources to projects
  • Budgeting enables a company to monitor performance
  • With effective management of finances, companies stand in a better position to meet their objectives
  • With a budget, decision-makers get an opportunity to enhance their decision-making

Other advantages of budgeting include:

  • Translating strategic plans into actions
  • Providing a topnotch record of organizational activities
  • Improving employee motivation

Disadvantages of Budgeting

  • Preparation of budgeting is time-consuming particularly in a poorly-organized environment
  • Budgets only account for financial outcomes and disregard more subjective issues, for example, the quality of products
  • A budget may contain inaccurate information as it based on a set of assumptions that might be flawed

Question2. (35 words)

Give examples of costs included in annual carrying (holding) costs of stock.

Examples of costs included in annual carrying costs of stock are incremental costs (such as obsolescence, insurance, and rent) and inventory costs, for example, the price of spoiled goods and storage space.

Question 3: (300 words)

a-Explain the difference between formal and informal organizations. What actions managers may possibly take in order to reduce the impact of the disadvantages of the informal organization? (6 marks)

b-List and explain the different factors that shape the culture of an organization. (4 marks)


Tanase, G. L. (2013). An overall analysis of participatory budgeting advantages and essential factors for an effective implementation in economic entities. Journal of Eastern Europe Research in Business & Economics2013, 1.

Beullens, P., & Janssens, G. K. (2011). Holding costs under push or pull conditions–The impact of the Anchor Point. European Journal of Operational Research215(1), 115-125.

Ali, I. (2016). Doing the organizational tango: Symbiotic relationship between formal and informal organizational structures for an agile organization. Interdisciplinary Journal of Information, Knowledge, and Management11, 055-072.

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Solved advantages and disadvantages of budgeting