Economics Capital Budgeting Questions
Capital budgeting and operational budgeting are two distinct processes in financial management.
Capital budgeting refers to the evaluation and selection of long-term investment projects that involve significant capital expenditure. It involves analyzing and determining the feasibility of potential investments, such as the purchase of new equipment, expansion of facilities, or development of new products. The primary focus of capital budgeting is on assessing the profitability and financial viability of these long-term projects.
On the other hand, operational budgeting focuses on short-term financial planning and control. It involves the preparation and allocation of resources for day-to-day operations of a business, such as sales, production, and administrative expenses. Operational budgeting typically covers a shorter time frame, usually one year, and aims to ensure efficient utilization of resources and achieve the organization's short-term goals.
In summary, the main difference between capital budgeting and operational budgeting lies in their time frame and scope. Capital budgeting deals with long-term investment decisions, while operational budgeting focuses on short-term planning and control of day-to-day operations.