Budgeting Basics and Beyond

Chapter 23. Budgeting for Service Organizations: Special Features

Abudget is important to meet goals and objectives. Most discussions of the budgetary process tend to focus on manufacturing firms. However, more businesses are becoming engaged in nonmanufacturing activities today, and such businesses can benefit greatly from a properly designed budgetary planning and control system. Budgeting may be used by a service business (which does not have merchandise inventory). For example, an airline may budget the average occupancy rate for seats and passenger miles. A hotel may budget the occupancy rate for rooms and the cost per room. For the most part, the budgeting methods and procedures described for manufacturing companies also apply to service businesses.

Special attention should be devoted to budgetary planning and control techniques in the service industry for two reasons. First, planning and control are critical functions in all businesses, whether they produce and sell goods or provide services. Many service businesses have become more competitive in recent years. This increase in competition can be attributed to many things, such as the growth of the economy and the increase in demand for specialized services. When competition increases, planning and control become even more important.

Second, the practice of budgeting is probably not as well developed in service companies as it is in manufacturing firms. In manufacturing industries, budgeting is forced on the business by ...