Budgets help management decide which activities it will undertake and how the company's resources will be used. If the budgeted income statement and balance sheet coming out of the master budget are not acceptable, management can make the needed changes before the year actually begins.
Budgets can also assist in controlling the actual costs, because managers realize that the costs of their activities will be compared to the budget.
The differences between the actual amounts occurring and the budgeted amounts are known as variances. These variances can also signal some new problems that need management's attention.
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