Which of the following is a benefit derived from budgeting?

• A. It eliminates the need for management decision-making.
• B. It removes all financial risks from operations.
• C. It guarantees company profitability.
• D. It provides a basis for performance evaluation.

Answer: (D)

Verified step by step guidance

1. Understand the purpose of budgeting: Budgeting is a financial planning tool used by organizations to allocate resources, set goals, and monitor performance. It does not eliminate decision-making, remove risks, or guarantee profitability, but it helps in evaluating performance against set benchmarks.
2. Analyze the incorrect options: The statement 'It eliminates the need for management decision-making' is incorrect because budgeting requires active involvement and decision-making from management to set realistic goals and make adjustments.
3. Evaluate the second incorrect option: 'It removes all financial risks from operations' is incorrect because budgeting cannot eliminate risks; it can only help in identifying and mitigating them.
4. Consider the third incorrect option: 'It guarantees company profitability' is incorrect because profitability depends on various factors, including market conditions, operational efficiency, and external influences, which budgeting alone cannot control.
5. Identify the correct benefit: 'It provides a basis for performance evaluation' is correct because budgeting allows organizations to compare actual results with planned objectives, helping management assess efficiency and effectiveness in achieving goals.