Cubic miles

The cost driver I used in the revised exhibit is the cubic miles of snow, because in the case it stated that “. .. The number of hours needed to clear the roadways depended to a great extent on cubic miles of snow. “, which means if there’s more snow on the ground, the plow drivers would work extra hours and therefore the department needs to pay more. Thus costs increase. Section AWE Group 3 1 . Apparently the flexible budget is more informative and reasonable. Because it Includes many activities that may increase the total budget cost, Make it adjustable hen there is an extreme weather and requires more plow drivers 2.

The public works director’s goal was trying to implement the new responsibility accounting system. Yes, I think the new approach is effective because It will give Sam Donaldson the quarterly report, Sam can be aware of the budget difference and make prompt adjustments, Help the department keep the costs within its budget 3. Yes the director should consult Sam, for The new director is newly hired and lack certain amount of experience, Sam Donaldson is more experienced and can make appropriate adjustments to keep the costs within the budgets.

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Financial Accounting

Table of contents

1. Introduction

In creating a business plan, many new entrants determine not to take profits in their first period of operation. The period could be a couple years or months. Amazon.com, a former online bookstore that grows to be an online retailer of any kind including books to collectibles, for instances, recorded losses for several years in late 20th century that account for millions of dollars. Frey and Cook (2004) revealed that in 2001 alone, Amazon.com recorder huge losses up to $1.4 billion.

Although the company continues suffered from great losses for many years, we witness that Amazon.com started generating fourth quarter of 2002 profit of $5 million and in October 2003, the company announced to generate $15.6 million of profits (Frey and Cook, 2004).

The situation raises questions as how the company resists from the storm before finally making profits commencing in 2002. Jeff Bezos, the CEO and founder of Amazon.com, is the person who designs the sustainable financial strategy that causes the company to survive during the dark side of Internet business. The strategy, especially, relates to budgeting strategy.

Traditionally, many people often consider budgeting and forecasting to have similar meaning. It turns out that each has different meaning. According to Quicken (2006), budgeting enables corporations to define budget amounts and then track how the company manages those amounts. Therefore, budgeting becomes an important skill for any people conducting business to prevent a company experiences cash shortage.

Meanwhile, forecasting is a tool that enables a corporation to project cash flow for the future based on scheduled transactions and estimated amounts (Quicken, 2006). In short, a financial forecasting is a prediction of future income and expenditure.

Concerning the budgeting issue, this paper will examine the Bart (1988) statement that says, “Managers pad their budgets out of fear that senior management will arbitrarily slash their submitted budgets and the managers` own concerns about uncertainties in the competitive environment”. Therefore, this paper will discuss the definition of budgeting and reveal the role of budgeting as an evaluation tool for organizational performance.

2. Theory of Budgeting

A budget explains projected expenses and revenues of an organization within a given period. Therefore, budgeting should comply with the organization’s programs and services to determine planning steps, evaluation methods, pricing for services, timing of events, and costs related to achieving the organization’s mission (Salamon, 1999).

In order to create appropriate budgeting, Arnold and Philip Olenick (1991) assert that there are four key steps in budgeting:

  1. Expenses are estimated first. This process involves the multiplication of the number of employees, quantity of supplies, advertising spots, etc., by the estimated cost per unit.
  2. Sources of income are estimated next. For companies, sources of income include revenues, foreign exchange profits, etc..
  3. Expenses must be brought into line with reality. Corporation must obtain balanced budget by balancing projected income and outgo.
  4. Board of management review and approve the final proposed budget

As measurement tools, a corporation should conduct evaluation periodically to examine whether the projected revenue and expenses are still in the course. If there is variance in the projected revenue and expense, the company must update and revise the budget accordingly.

3. Slash of Submitted Budget à Role of the Budget as Evaluation tools of Organizational Performance

Hansen & Mowen (2003) reveal several functions of an ideal budgetary system. Three of which relate to their roles as evaluation tools of organization performance as following:

  • Pressing Management to Plan

In this role, budgeting process will force management to plan and therefore will encourage managers to develop comprehensive direction for the organization, foresee problem and develop future policies.

  • Providing necessary information to improve decision making

In this situation, budgeting can help a company to prevent from experiencing unfortunate situations. For example, if Amazon.com does not have strong budgeting method, during the dark side of Internet age in 1990s, the company may face bankruptcy immediately.

This role is inline with corporate objective to determine which activities that do not add values to the company. Upon the finding, the company may decide eliminate or reduce the budget for those activities and reallocate it to other activities that are more profitable in order to maintain the company’s performance.

In addition, a budget also helps managers to make decision based on accurate information since inaccurate information will cause bad decisions that could harm the firm. Concerning the decision-making, Emmanuel, Merchant, and Otley (1990, p. 16-18) reveals that accounting systems should provide management with appropriate information to facilitate mental model building and maintenance although it depends on several conditions such as environment and constraints of managers in an organization.

For instances, in short-term make or buy decision, programmed decision takes into account trustworthy knowledge, especially concerning the cause-and-effect relationships (Emmanuel, Merchant, and Otley, 1990, p. 15)

  • It Improves Communication and Coordination

This role describes that budgeting helps corporations to communicate the plans of organization to each employee. Thus, all employees in the corporation are aware of their role in achieving these objectives. In addition, budgeting will help promoting coordination, various departments to work together to achieve organizational objectives (Hansen & Mowen, 2003).

4. Budget and Uncertainties in the Competitive Environment

4.1 Choosing Suitable Budgeting Approach

This role is best described by using case of Amazon.com, Google, and other internet giants that once face difficulty in generating revenue from internet-based services in addition, concerning the uncertainties in the competitive business environment, a company must decide suitable budgeting approach since each has particular advantage.

Currently, there are two models of financial budgeting; they are functional-based budgeting and activity based budgeting. The functional-based budgeting is the old approach in financial planning strategy. Meanwhile, the latter is the new one that many corporations adopt to manage their projected expenses better.

Technically, functional-based budgeting is a budgeting strategy that considers a single cost driver as a basis of cost calculation. The single cost driver could be labor working hours or machine hours. Although this budgeting method is widely used in the past, the requirement of managerial planning that needs accurate information has put aside the use of this old budgeting approach. The disadvantages of employing functional-based budgeting are as following:

  • Inaccurate financial target
  • Inaccurate standards
  • Inaccurate performance evaluation

In addition, activity based costing is a new method in budgeting that uses multiple cost drivers to determine costs. This attractive approach provides a corporation with more realistic and accurate model of budgeting.

The above comparison describes that appropriate use of budgeting can help a company to find and eliminate inefficiencies that occurs in the company. The inefficiencies include the wrong choice of budgeting system.

  • Beyond-Budgeting and Better-Budgeting Approach

In order to perform well in uncertainties, corporations need to find appropriate budgeting approach, as mentioned above. However, many companies do not regard budgeting. Under such circumstances, Beyond Budgeting Round Table (BBRT), an organization that established in the U.K., aims at identifying corporations that discard budgeting and figuring out why they do so (Daum, 2002).

In addition, BBRT describes there are six external factors that influence the operations of today’s company and that become underlying facts driving corporation to move into the Beyond Budgeting model:

  • Shareholders become demanding and only loyal to organizations that continue showing incredible performance as top companies in their respective industry.
  • Brilliant people are more and more in short supply and pay attention to values and the environment.
  • Innovation grows at a breakneck speed that demand corporation to consider business life cycles strategy and therefore its budgeting as well
  • Prices of products and services fall and quality improved
  • Corporations must perform close relationship with customers
  • Investors and regulators demand honest report of corporations’ performance (Daum, 2002)

In order to cope with those demands, corporations need to improve their budgeting process. According to a data, it is found that more than 68% of companies rely on forecasts on instead of budgeting. About 56% intends to improve the accuracy of those forecasts, while the rest (about 27%) plan to lower the time spent on them. Under such circumstances, corporations should perform better budgeting including the implementation of what-if-scenario capabilities, enhance collaboration and realize driver-based forecasting.

4.3 Role of a Budget in the Uncertainties of Business Environment

In addition to choosing suitable budgeting approach, a company must understand that a business has a business life cycle as described in the figure 1. The figure shows that a company many be at a peak performance but at the other time, it will experience a recovery stage.

Whichever state a company stays at a given period, it needs strong cash flow to finance the business operation. In this situation, budgeting has significant role in helping a company to survive in the business cycle.

4.3 Internal and External Control Mechanisms to Monitor and Evaluate the Budget

In order to evaluate whether a budget has met the intended results, a company can conduct a mechanism that monitor and evaluate the budget. In general, the control mechanism can be divided into two types: internal and external evaluation.

In internal evaluation, a company can set up a checklist that consists of several components; they are Type of agreement for the evaluation, Condition of payment, Funding source, Funding period, Budget contact, Budget limits, Condition of payment, and Preaward costs (Horn, 2001).

In addition, the external evaluation method consists of the appointment of consultants to assess whether the budget of a company is still in line or not. The employment of external evaluator is beneficial since consultants have extensive experiences in accomplishing several budget evaluations. In addition, consultants are considered as independent contractors and are not included under personnel costs (Horn, 2001).

  • Budgeting as Performance Accountability and Reward Process

A budgeting can also become standard for performance evaluation by providing a set of standards that will control the use of company’s resources and motivate employees. In addition, as an inseparable part of the budgetary system, control is achieved by comparing budgeted result with actual result on a periodic basis.

For instances, if a production manager of a bread-producing company knows that 5 breads take about 1 pound of flour, then he can evaluate his employee in terms of efficiency. If the five breads use up more than 1 pound of flour, there is an ineffective use of flour within the production system (Hansen & Mowen, 2003). The condition reveals that the budgeting in the production department requires evaluation

Conclusion

The reason of conducting budgeting is to forestall times when a business needs to incur a great amount of expenditure before the company was paid by customers. It means that appropriate budgeting process will prevent the company from unfavorable situations such as cash shortage and business termination.

Concerning the budgeting, this paper has discussed several issues including the role budget as evaluation tools of organizational performance, budget and uncertainties in the competitive environment, choosing suitable budgeting approach, and budgeting as performance accountability and reward process.

Regarding the role of budgeting as evaluation tools of organization performance, Hansen & Mowen (2003) describes its three functions: pressing management to plan, providing necessary information to improve decision-making and improve communication and coordination.

Meanwhile, budgeting role in managing uncertainties in the competitive environment also composes of three functions/activities: choosing suitable budgeting approach, internal and external control mechanisms to monitor and evaluate the budget, and budgeting as performance accountability and reward process.

In addition, the emerging concept “beyond budgeting”, a term coined by Beyond Budgeting Round Table (BBRT), an organization that established in the U.K., aims at identifying corporations that discard budgeting and figuring out why they do so (Daum, 2002).

Works Cited

  1. Daum, Juergen H. 2002, Performance Management beyond Budgeting: Why you should consider it, How it works, and Who should contribute to make it happen, The New Economy Analyst Report, June 08, 2002
  2. Elliott, Barry & Elliott, Jamie. Sep 2006. Financial Accounting & Reporting, Financial Times / Pearson Education
  3. Emmanuel, Clive., Merchant, Kenneth., and Otley, David. Aug 1990, Accounting for Management Control, International Thomson Business Press
  4. Frey, Christine and Cook, John. 2004, ‘How Amazon.com survived, thrived and turned a profit’, [Online] Available at: http://seattlepi.nwsource.com/business/158315_amazon28.html
  5. Hammer, Lawrence H. Carter, William K. Usry, Milton F. 1994, Cost Accounting. South-Western
  6. Hansen, Don R. Mowen, Maryanne M. 2003, Management Accounting. South-Western
  7. Horn, Jerry. 2001, ‘A CHECKLIST FOR DEVELOPING AND EVALUATING EVALUATION BUDGETS’, [Online] Available at: http://www.wmich.edu/evalctr/checklists/evaluationbudgets.htm
  8. Olenick, A.J. & Olenick, P.R. 1991, A Nonprofit Organization Operating Manual, New York: The Foundation Center.
  9. Quicken. 2006, ‘What is the difference between forecasting and budgeting?’ Retrieved December 14, 2006 from http://www.quicken.co.uk/faqs/200203-07.html

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The Budgetary Boeing Process

A budgetary process refers to the process by which a budget is prepared and approved. For a business undertaking, this process is either enshrined in the firm’s constitution or dictated by its culture.

The budget process at Boeing Company involves a team comprising representatives from its core departments. This team is made up of upper level operation and functional managers and those from the middle level management positions. This is important because while the upper level managers are in a position to access business intelligence efforts tools to assess the company’s environment the middle level managers understand business procedures and often have valuable information that can impact on both the short and long term goals.

There is also an aspect of interdependence between Boeing and its affiliates, particularly where outsourcing is desired. A good example was its relationship with aircraft engines suppliers. General Electric to develop engines for the 777-200 and 777-300 models in Boeing 777 commercial airplane series. Representatives of both companies have to meet so that estimates of their joint functions are incorporated in the . Resultant budgetary estimates are then presented to the board of directors for approval.

Boeings process of budgeting allows for an organized and structured group exercise. Despite the loopholes in the execution, Boeing’s budget has never been grossly outdated by uncertainty in its market. According to the Chigago tribune (2009) even when the US government cut its funding leading to laying off of close to 1000 employees, and this in the face of global financial crisis, the company is still the most profitable in its niche. This attests to the effectiveness of its budgetary process.

Since the deregulation of commercial airline industry in the early 1990’s, Boeing aim has always been to streamline its processes while improving quality, empowering employees while improving profits and at the same time, responding quickly to customer demand. A part from the budgeting process encouraging invention and innovation, from within, the outsourcing of LEAN manufacturing from Shingijustsu Company placed it on the path to global competitiveness.

It can therefore be said that its budgetary process has been of value. However, there is a caveat. There has been instances whereby certain functions were dogged by budgetary bottleneck born out of under costing. Again, a series of write – offs related to collapsing space market and integration problems from some of the acquisitions made in an attempt to diversify away from commercial aircraft. Hence the process need not be abandoned, but improved by filling the loophole that has already been seen.

References:

Chicago Tribune, July 27, 2009

Internet

www.goliath.ecnext.com

www. Aligment.com

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Computerized Budgeting

Computerized Budgeting MGMT 360 Budgeting has been a major part of forecasting how companies spend their money throughout the fiscal year. In most companies, the words “it’s budget time”, strike fear in the hearts of employees. Financial officers and management accountants brace themselves for reconciling reams of spreadsheets that may reveal wildly different data depending on order and configuration. Non finance employees in various divisions scurry to understand their role in the budgeting process and struggled to pull together the facts and figures they hoped would appear attractive to management.

Traditional budgeting was carried out on a pad and pen, archived in countless journals and ledgers and often stored in boxes and crates. Retrieval was a difficult task. Today, computerized budgeting (E-Budgeting) solutions have streamlined and transformed the budgeting process at all levels of an organization. This research will show the factors that contribute to every day individuals to government; that are now using E-budgeting for accurate budget and bookkeeping strategies. Before the days of calculators, computers, and the internet, companies had to budget their finances the old fashioned way.

Many accountants had to have countless ledgers, journals, and books filled with the next fiscal year’s projections. At the end of the year they had to go back and reconcile all figures and see what they could do to make the next year even better. This was a very demanding task, since all they had to use was scratch paper, abacuses, and lots of ink. Since technology was not yet able to provide ease to these tasks, the actual task of budgeting and bookkeeping was costly and largely ineffective. Traditional budgeting had many problems. Many employees of companies were unaware about what the company needed in order to make the budget work.

With many employees not knowing what information was important and what wasn’t, many budgets and forecast tools were inaccurate. Another weakness was that historical data and past budgets were harder to access. Steve Hornyak of Management Accounting Magazine explains: “The biggest drawback of traditional budgeting systems is the inability of participating individuals to access and use historical data during the budgeting and planning process. In fact, employees or managers attempting to allocate their sliver of the company funds often work in a vacuum.

Without access to historical budgeting information, creating a budget from the ground up or making alterations to the existing budget may become tedious — and sometimes futile — tasks for nonfinance users” (Hornyak, 1998). With employees unable to contribute true validity to the budget and the key historical data missing, bookkeeping was quite difficult. Another stumbling block traditional budgeting presented became obvious when separate departments or different regions within a parent company would try to pool their records together. All figures and numerical records were united and the CFO would make a final projection.

However, if one department’s figures were off or slightly miscalculated, the company’s budget as a whole was inaccurate. Companies knew that something had to be done. Ian Henderson of Management Accounting Magazine states: “The majority of the problems encountered with budgeting arise from managing the process itself…The choice for large [organizations] is either to loose many of the undoubted benefits in planning and control offered by budgeting or to apply a software solution to the process and make it less troublesome, less costly and more effective” (Henderson, 1997).

Computerized budgeting allows departments using the same program, to bring all figures into one general location, saving countless man hours. With the introduction of advanced data-entry techniques, the undertaking of budgeting each year became easier and easier. Computers helped add and subtract much faster and more accurately, so entering key figures in a spreadsheet became the wave of the future. It made life easier for accountants so they could show their finance departments and other clients exactly how money was going to be spent.

It helped create exact figures making pie charts, line graphs and other figure representatives accurate. E-Budgeting has many different aspects and facets. The most useful part of e-budgeting is that it completely automates the budgeting process. Steve Hornyak defines e-budgeting: “An e-budgeting solution completely automates the development of an organization’s budget and forecast. … Web-based enterprise budgeting systems offer a centrally administered system that provides easy-to-use, flexible tools for the end users who are responsible for budgeting” (Hornyak, 2008).

The author of the article points out how the technology computerizes the process of making an effective budget. This helps anyone from a small family to a government department with the means of tracking and monitoring a budget. As technology continued to advance, these methods became easier to obtain and utilize. Anyone from the smallest Mom & Pop Store to government officials could enter the necessary information and see exactly how and where their money was going to be divided.

Once the internet was created, companies could create inter-office emails and memos making sharing the information that much easier. Companies were able to save money and focus man power more effectively with each new and improved software addition. Most programs used to make budgets that are available to the general public are stand alone applications. These programs stay on the same computer they were created, and don’t need to interact with other software or computers on a related network or the internet. The data created and stored on these programs also stay in one centralized location.

This type of budgeting is useful with small families and companies since there is no need to let the information reach the wrong hands. Programs and applications that use outside servers and client formats are usually associated with bigger companies and departments that have many employees over different parts of the country. Some companies use programs that interact with many different financial agencies across the country and even the world. Financial Executive Magazine reviewed a new service offered by Ebudgeting. com and explained its useful tools: “Ebudgets. om, a specialist in Web-based budgeting and planning technology, has delivered ebudgets 3. 0, a release that it says give large and complex companies increased “dynamic control” over their budget processes. The software automates budget consolidation, giving management an immediate budget overview” (14, 2000). These companies need services such as this when there are multiple stores or divisions of a parent company. CFOs and other executives need an instant overview of how certain regions and departments are doing financially, in order to make informed decisions and executive judgments.

Having budgeting tools that are able to integrate with other financial programs or systems is quite a useful feature. Companies have learned how to create tools and make the entire financing process become one easy process. A company out of Richmond, VA, The Bookkeeping Department, created a product with the same qualities. Accounting Technology Magazine explains: “Key to the success of The Bookkeeping Department is the deployment of an electronic document management solution that integrates with the most prevalent SMB [Small –to-Medium Business] accounting system, Intuit’s QuickBooks”.

Scott Vaden. , President of The Bookkeeping Department, found the perfect integrated solution in CNG-Books, Cabinet NCi’s electronic document management system that streamlines Quick-Books data entry and document filing into one consistent and efficient electronic process. By uniting QuickBooks transactions with business documents, CNG-Books makes filing, locating, and sharing documents simple, seamless, and secure” (SR25, 2008). This new program is an excellent example of how financial agencies and departments are able to share information and help ease the process of bookkeeping.

Using computerized budgeting tools and programs have many benefits to a company. One major benefit is helping to cover liability when it comes time to interact with the government and make figures public. For example, many times companies who had prepared taxes using older budgeting and bookkeeping methods were held responsible for any mistakes made, costing a company unnecessary fines and expenses. Now with computerized assistance and internet support, companies can avoid such penalties.

Wayne Shulz of Accounting Technology Magazine explains: “Even the best payroll staff can make mistakes with the confusing array of payroll tax deposit rules. Nearly every payroll processing company protects you against costly tax deposit penalties and interest by guaranteeing timeliness of your online tax payments…If there’s a mistake in computation or timeliness, the processor pays and not your company” (Shulz, 2009). This shows how using computers and having interacting financial agencies saves companies money.

Another way computerized budgeting helps companies is by bringing together different parts of the company thus increasing employee participation. Once the process of making a budget is streamlined, many employees don’t mind being apart of it. Lesley Meall of AccountancyMagazine. com spoke with Dave Turner of Coda Inc. in a recent issue. Turner was quoted as saying: “’We are seeing a lot more collaboration on budgeting,’ he says, and the process is arguably becoming more useful.

As more people become involved and the process becomes more accurate, people feel more important and empowered,’” (Meall, 2008). With an easier system in place, inter-department collaboration is an idea many are able to grasp. One last advantage new-age budgeting creates is helping save time and money in the budgeting process. By using computers many companies are able to save paper, not having to create and copy existing budgets or taking up space storing old budgets. With the recent growing popularity of going green, many companies have taken conserving resources to heart.

AccountancyMagazine. com continues: “Going green can save money as well as the planet, but it can be difficult to know where to begin, so the sustainable business experts at Envirowise are offering help in the form of an interactive online tool. ” It allows businesses to get the information they need to get started quickly and easily,’ said spokesperson Mary Leonard, ‘highlighting those measures that are likely to provide them with the greatest cost-savings benefits in the areas most relevant to their business’” (Henderson, 2009).

This shows cutting costs in any way helps not only the bottom line for companies but also has a positive effect on the environment. In conclusion, there are many benefits to using computerized budgeting programs both on and off the internet. The use of these programs helps simplify and expedite the making of budgets and bookkeeping for both the financial savvy and the fiscal illiterate. Dragging and dropping figures, more accurate results, effective presentation options make computerized budgeting the best practice for everyone. Traditional budgeting has had its share of inefficiencies and flaws in the past.

Today, newer technologies and faster computing methods have helped to alleviate most, if not all, of those issues. References • Henderson, Ian. (October 1997). Does Budgeting Have To Be So Troublesome? Management Accounting: Magazine for Chartered Management Accountants. 75(9). P. 1. • Hornyak, Steve. (October 1998). Budgeting Made Easy. Management Accounting: Magazine for Chartered Management Accountants. 80(4). P. 1. • Meall, Leslie. (February 2008). A Marriage Made In Heaven: Budgeting Technology. Accountancy Magazine. p. 65. • Shulz, Wayne. (April 2009).

Online Payroll Can Save You Money: Letting Someone Else Wade Through The Process Can Benefit Clients. Accountancy Technology. p. 18. • Financial Executive review of E-Budgeting. com (September/October 2000). Retrieved April 23rd from Financial Executive Magazine website. p. 14 • Soaring With Integrated Electronic Document Management: Accounting Technology (June 2008). Retrieved from Accounting Technology website on April 24th. p. SR25. • Boost Your Bottom Line: Accountancy Magazine. (February 2009). Retrieved from the Accounting Magazine website on April 24th. p. 55.

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Consequences of Successful Business vs Unsuccessful

Table of contents

All these success factors enhance the strengths of the business, which makes it more competitive in the marketplace. Let’s have a look at two similar businesses, a successful one. KEF, and an unsuccessful one, Mochas’ Chicken Villages and we can see how applying quality relates to some business functions.

Business Image or Public Relations Function

The main objective of the PR function is to present a good impression of the business because customers associate the business image with the product. So the KEF chicken with the secret recipe Is what the customers see as the company. If they are happy with the chicken they are happy with the company, KEF as a whole. KEF is a large business with lots of money to spend on the appearance of the stores, advertising, presentation of meals like the boxes etc and even dressing their staff is nice eye catching uniforms. Another good PR method is direct contact where staff members come into contact with orphanages, hospitals and schools. KEF makes sure that the media are informed so that they receive publicity about their good deeds.

Mochas’ Chicken Villages on the other hand didn’t have a lot of money at their disposal for Image which put them at a disadvantage. Because Mochas Chicken Villages didn’t have the look of a well established company with large corporate offices, big expensive advertising, and the customers associated that with their ability to provide good food. They did nothing in the community and got bad publicity when things started to go wrong at the stores.  Product Quality and Operations Function Improvement in quality is achieved with the advancing in manufacturing technology.

The company has to keep up with the times and do constant reassess of future production requirements burgers and even boneless chicken. They are improving their technology all the time. An example is the grilled KEF chicken you get today. They have realized that customers are also trying to eat a little healthier and they have developed new technology to grill the chicken instead of frying it but always keeping the quality high. Mochas’ Chicken Villages have stuck to one or a few products. Not bringing in anything new or keeping up with the latest on the market.

And this could lead to a lack of interest from the public and eventually bad quality of the food. Quality Human Resources Function Appoint employees that have the abilities and experience to obtain results. KEF have the resources to spend time and money on training the staff as well as raining the managers. They have the money to pay the employees what they are worth. Happy workers equal more productive workers. They hire the correct people for the Job and outsource certain required services such as IT specialists to keep their till systems working properly.

Organization and leadership are also a successful part of the KEF staff. Mochas’ Chicken Villages have perhaps cut costs and employed inexperienced staff that don’t have the abilities to provide a good service to the customers therefore making it more difficult to get the results they wanted. The management haven’t men trained properly and that reflects on the company as a whole.

Quality Administration Function

Administration is spread throughout the entire company and this need s to be of the highest quality for all systems to work and eventually for the management to make the correct decisions. KEF have the correct systems in place from their production lines to the delivery of good to the systems in the stores. All documentation is done correctly and all systems are in place and check. Policies and procedures are followed to the last detail such as the cleaners noting down the time they have cleaned. Stock control is an ongoing recess. All the information collected is used for research and development, planning, projecting and budgeting ahead and also steps are taken to make sure the right decisions are made for the goals of KEF to be achieved.

Mochas’ Chicken Villages didn’t have all the policies and procedures in place. They made incorrect decisions regarding renting new space to operate in. They didn’t analyses their customer’s needs, they didn’t project future sales or work out the financial position of the business. The most important thing is that Mochas’ Chicken Villages didn’t remain sustainable in today’s competitive business world.

Quality and Healthy Financial

Function resources and services to operate properly. The financial manager must make sure that the business can make enough money to cover the cost of raising the capital. KEF have done budgeting which is the most important mechanism for financial control. KEF have many stores and many investors, properties and equipment which all forms part of making the business financially stable. Mochas’ Chicken Villages didn’t have enough investors buying into the franchising concept and then the expenses eventually became more than the income, this showing a lack of financial planning, budgeting and control.

They had no investors and that meant no security that the business would remain sustainable or too much of the owners capital was required. In conclusion: Good managers will ensure successful business results because it will ensure that customer needs are satisfied. As the saying goes “Good managers are trained, not born. ” Hardly anyone is born a good manager. Almost all of them have learned it. And the good thing is that it can be learnt. Plenty have done it. And so can you. Learning to be an excellent manager requires education, training and experience. You can’t skimp on any one of them. It takes all three.

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The Advantages and Disadvantages of Budgeting

Table of contents

Budgeting as system of organization control sounds not something controversial since even from the smallest organization, one can readily see the need to estimate the level of revenues and expenses and the related amount of assets or resources that may be used to attained a desired. Even from an individual viewpoint, it is normal for a person to know how much he or she is earning from his or job or business as basis of estimated expenses in relation to the kind of life style that a person intends to have.

Living within one’s means is a familiar statement or phrase for those who want to keep a balance of their financial resources and needs.  If this personal principle is applied in business organizations, it should be easy to appreciate the advantages of using budgeting as a system of control.  The idea of control should be kept within the meaning of keeping a balance of the level of expenses in relation to level of revenues. Incidentally, a budget is defined as a formalized quantitative presentation of a firm’s coordinated plans.

Quantitative presentation includes the amounts of estimated, expense, assets and liabilities to be used in the organization. As such, budgeting refers to the act of combining a group related functions or operations of interrelated activities using the revenues, expense, assets and liabilities to attain a particular purpose. The primary purpose of business budgets is to improve planning and control and ultimately to increase profit and improve the financial position of the firm. As such, preparation of formal plan keeps the budget initiated and that is submitted to another person for review. Said budget approximates a ‘contract’ or agreement although not exactly similar to legal contract where one would go to court to enforce performance.

The employer may just opt to dismiss from employment an ineffective and inefficient manager who simply cannot implement a budget plan. Organizational control is achieved by comparing results with the budget and by holding proper individuals accountable for variances. Results which may be in the form of variances between actual and budget presupposes measurement and measurement is best manifested in the financial report, hence, to do a budget control there must be a system of accounting that allows the verification of  the activity and the corresponding obligation or accountability of the persons in the organisation.

To attain organizational control is to attain the financial and other objectives of organization including the need to demand accountability of managers for results. To appreciate therefore how budgeting helps in meeting objectives, the following subsections will discuss the advantages to be followed by the disadvantages of budgting. Read about advantages of formalization in organization

The Advantage of Budgeting

The advantages of budgeting as system of organization control lie in the capacity of budgeting in ensuring to meet the defined objectives of an organization. Thus, the advantages discussed here are based on the framework on whether budgeting helps in meeting organization objectives.

Budgeting is an important part of planning and is material for the survival of the organization.  Companies are destined to live and to survive in the business world and the keys to success according to the authors  are long term competitive advantage in the knowledge and in the formation economy.   Such keys to successes are based on successful strategic management of intangible resources. It is therefore an issue of how should people especially the managers should spend their time and resources in trying to survive and compete within and outside their organisations. Would they rather forget budgeting and instead concentrate in improving their human resources, training to be more productive without necessarily being tied with their budget system?

 Barsky and Bremser, who aimed in their study to explore the implications of the changes in the global economy on budgeting and performance measurement, did acknowledge that financial budgets have traditionally served as the primary internal metrics of performance. Realizing the pace of accelerating change global economy, the authors felt that it is important for firms to move beyond lagging financial performance indicators to consider variables that contribute to long-term value creation.

Changes in corporate performance evaluation requires new methods. Barsky and Bremser asserted that success of shareholder value could be measured by its ability to maximize the present value of future cash flows to corporate shareholders.  Whatever new method may be used as new term, if it involves the use of estimates of money, the same thing may fall still under the broader concept of budgeting. An interesting question that could be asked is: Is not the concept of present value of future cash flows of corporate shareholders financial management concepts necessarily connected to financial data which the same informational structure as that budgeting?

Of course, there is relationship among financial data. The concept of net present value is indeed part of capital budgeting where estimates of cash flow are made.  Capital budgeting would still not wipe out budgeting, which generically refers to planning.  The authors mentioned about popular ‘economic value added (EVA) which evolved as a measure of management performance’. They did explain that ‘EVA provides a singular measure, adjusted to resolve accrual accounting issues that provide management with an explicit incentive structure that is intended to drive value creation for shareholders’. They cited the work of Amir and Lev which shows that ‘non-financial information is a critical element of the valuation process’ and the proposition that the ‘emerging model for multinational enterprises is the flexible organization. Again the arguments that would seem to deny the use of budgeting is not fully supported hence budgeting as part of planning or breaking the long-term  planning is still relevant in meeting organizational objectives.

Integrated performance measurement systems for greater use of control systems are still budgeting in meaning. Integrated performance systems are deemed part of budgeting. Such  integrated performance measurement systems like the Balanced Score card occupying a great attractiveness, greater use of control systems that report more than financial limits, but also integrate risk, and change being the ‘impetus for substantive employee empowerment in the budgeting and evaluation processes, among others are the main contents of the authors’ recommendation in the study.

The need for tools to help managers in meeting the challenges of strategic implementation and performance measurement would be better served by integrated performance systems. The fact of transfer of global capital from capital-intensive industries to knowledge intensive industries may thus require greater use of control systems. As Barsky and Bremser found that the “shift of resources translates into greater expectations of accountability”. The situation therefore of a more knowledge-based economy would necessitate organisations to empower the managers in the budgeting and evaluation process. This is realisation of the authors that ‘managers across the organizations will be expected to control and monitor greater aspects of the business, in terms of the finance function’ is still arguing for budgeting to be used in organizations.

It may be further argued that hat parties who are clamouring for better techniques point to the different limitations of the traditional budgeting but the concept of integrated performance systems, which include the Balance Scoreboard still, may possess the elements of assigning cost and revenues to profit centres. Such latter activity is essentially budgeting still.

Budgets as mechanisms of efficiency. Wildavsky admitted of conditions before budgeting could be used for planning that is predictability. Predictability is a more of an educated guess rather an improbable forecast. Hence, with its own borders, budgeting may not be compared arbitrarily to what it was not originally intended because simply the conditions for its use did not exist. If indeed budgeting will be used for control and accountability, improvement in terms of efficiency is the necessary consequence.

This fact is confirmed by  Wildavsky’ argument that  ‘budgets may be mechanisms of efficiency-doing whatever is done at least cost, or getting the most out of a given level of expenditure-and/or of effectiveness-achieving certain results in public policy, such as improving healthcare for children or reducing crime.’ It may be argued that to promote efficiency is to reduce cost and to reduce cost is to increase profit and to increase profits is to meet financial objectives.  If efficiency is increased by budgeting, there is should be sufficient ground to believe that budgeting is effective in organizational control.

Budget keeps spending in many organisations whole including the government. It is hard to imagine the absence of budgeting in any organization.   Since the government is an organization, it should be consistent to reason to see the advantage of having budgeting as part of the system.  Without the budgeting in government, it is difficult how would the government organisation regulate and control deficits. There will be a greater evil if there is no budgeting. Viewed from the point of view of a private business, how would such organisations know the limits of their spending for the year without a budget?

 Wildavsky had the opportunity to corroborate this reality when it states that ‘spending by agencies will be kept whole’. He explained that the central budget office bears the brunt or covering larger expenditures and takes the blame when the budget goes out of control, that is, rises faster and in different directions than predicted. He noted that in Britain, where budgeting by volume went under the name of the Public Expenditure Survey, the Treasury finally responded to years of severe inflation by imposing cash limits, otherwise known as the traditional cold-cash budget.

Of course, department cash limits include an amount for price changes, but this is not necessarily, what the Treasury expects so much as what it desires. Wildavsky’s point is that the spending departments have to make up for deficits caused by inflation and that instead of the Treasury handing over the money automatically, as in the volume budget, departments have to request it-and their requests may be denied. He thus advocated that the local spenders rather than the central controllers have to pay the price of monetary instability. In other words, budgeting may be used to control inflation by controlling budget deficits.

The Disadvantages of Budgeting

Budgeting like any other form on control involves cost and there is fear that the level cost may outweigh its intended benefits.   Most organisations have some sort of budgeting system but they are questioning the expense and effort expended against the benefits that the system brings. However, with organizations still using budgeting or some sort of  budgetary system despite their questions indicates a need, is a proof of an indispensable need for budgeting in organization. The problem therefore associated with not being convinced of the benefits of a budget, whether traditional or not, as against its cost is best addressed by the understanding of the need to plan for an organisation. Each model has its own strengths and weaknesses and it is on the decision maker to take advantage of this knowledge about each model’s capabilities and limitations.

A budget historically aims for accountability and control and to have same, there is need for commitment. Unless organisations are willing to let go off this, they may not altogether abandon traditional budgeting.  It is undeniable though that budget systems must go with ever changing environment and technology if companies want to survive competitions in their respective industries. Another disadvantage of budgeting is the it may destroy creativity of some managers as a number of  them may just feel to be bound by what is provided by the budget.  This is of course very much possible if the organization is sticking to a fixed budget.  The remedy therefore is to have a flexible budget.

Conclusion

It can be readily seen that budgeting is here to remain as part of organization because of its advantages outweighing its disadvantages in its function as a system of organizational control. The advantages in using budget in effecting control will remain and would continue to sustain the use of the same as long as there are organizations.  To remove budgeting is to remove planning and to remove planning is to remove management.  Removing management would simply be not acceptable because that would be removing the accountability and purpose of organizations.

This paper has demonstrated the critical role of budgeting as part of strategic management on intangibles in the survival of organizations.  The success of organizations being attributed to new methods do still reinforces the relevance of budgeting in organizational control.  Although the concept of net present value as used cin apital budgeting where estimates of cash flow are made is being praised to have caused success of many organizations, said principles of capital budgeting would still sustain budgeting, which generically refers to planning.

This paper has also established that situation about a more knowledge-based economy that would move organisations to empower management in the budgeting and evaluation process. Since there is the alleged realisation, where managers across the organizations should be controlling   and monitoring greater aspects of the business, in terms of the finance function, the said position in fact is favourable to arguing that budgeting as well should be strengthened.

It was also strongly asserted that  the clamour for better techniques by pointing to the different limitations of the traditional budgeting  and adopt instead the more contemporary  concept of integrated performance systems which include the Balance Scoreboard, could still be considered as arguing for the more expanded use of budgeting. The process as analyzed under such measure of performance still possesses the elements of assigning cost and revenues to profit centres. As such, the latter activity is still essentially budgeting but may be termed in another name. It was also posited that budgeting would promote efficiency.

So that promoting efficiency is aimed to reduce cost. With reduced costs, profits would be increased and the increase profits would undeniably meet organizational financial objectives.  Hence, budgeting is effective in organizational control.  The advantage of budgeting was established indeed even in government organizations as not having budgeting in the government would be denying  government one of its important functions in terms of fiscal policies such as found in regulating and controlling deficits in order to prevent the greater danger of inflation that could have disastrous effects to many business organizations. Thus there would no way to assess the proper tax without budgeting in government.  There were also disadvantages discussed but this paper has provided counter arguments to strengthen the net advantages of having budgeting in organizations as a system of organizational control.

Works Cited

  1. American Encyclopaedia, De Luxe Library Edition, Grolier Incorporated,   Connecticut, USA 54.1996
  2. Amir B. and Lev B., “Value- relevance of Non- financial in formation: The Wire less Communication Industry,” Journal of Accounting and Economics, 22, 1996, pp. 3-30.
  3. Atkinson, Anthony, et al, Management Accounting, Person Custom Publishing, New Jersey, USA, 2005
  4. Barsky, P, & Bremser, W.,  Performance Measurement, Budgeting and Strategic Implementation in the Multinational Enterprise, Managerial Finance, Volume 25 Number 2 1999
  5. Buckley P. and Casson M. C.,  “Models of the Multinational Enterprise “, Journal of International Business Studies, 29:1, 1998, pp. 21- 44
  6. Slavin, S..  Economics , Fourth Edition,  IRWIN, London, UK, 1996
  7. Wildavsky, A.,“A budget for All Seasons: Why the traditional Budget Lasts” (1978), The Public Administration Review, vol. 38 (1978):502-
  8.  American Encyclopaedia (1996) , De Luxe Library Edition, Grolier Incorporated,   Connecticut, USA, 1996
  9.  Barsky, P, & Bremser, W. (1999), Performance Measurement, Budgeting and Strategic Implementation in the Multinational Enterprise, Managerial Finance, Volume 25 Number 2 1999
  10. Amir B. and Lev B., (1996) “Value- relevance of Non- financial in formation: The Wire less Communication Industry,” Journal of Accounting and Economics, 22, 1996, pp. 3-30.
  11.  Buckley P. and Casson M. C., (1998) “Models of the Multinational Enterprise “, Journal of International Business Studies, 29:1, 1998, pp. 21- 44
  12.  Barsky, P, & Bremser, W. (1999), Performance Measurement, Budgeting and Strategic Implementation in the Multinational Enterprise, Managerial Finance, Volume 25 Number 2 1999
  13.  Wildavsky, A. (1978), “A budget for All Seasons: Why the traditional Budget Lasts” (1978), The Public Administration Review, vol. 38 (1978):502-509.
  14. Slavin, S..  Economics , Fourth Edition,  IRWIN, London, UK, 1996
  15. Atkinson, Anthony, et al, Management Accounting, Person Custom Publishing, New Jersey, USA, 2005

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Managerial accounting question answers

“If an investment does not fit with an organization’s strategic plan, It Is probably not a good Idea, even If the net present value Is positive. ” Under what conditions would this be a true statement? When would It be false? The statement is generally true. Investments should be made that are consistent with the company’s strategy. Sometimes a deal comes along that is too good to pass up. In such a case, a company might depart from its strategic plan (or revise the plan to accommodate the investment) 2.

A film with an opportunity cost of capital of 15 percent faces two mutually exclusive investment projects: a. Acquire goods at the start of the year, ship them to Japan, and sell them at the end of the year. The internal rate of return is 20 percent and it has a positive NP. B. Make certain expenditures today that will cause reported earnings for the year to decline. This will result In large cash flows at the end of the second and third years.

The Internal rate of return on this project Is 30 percent and It has a larger NP than the first project. Management observes that for the current year the second reject will result in smaller earnings reported to shareholders than the first. How might management’s observation influence its choice between the two investment projects? NAS: Sometimes, because of the conservatism of financial accounting, expenditures that are “Investments” are not capitalized, but are written off currently, depressing current earnings but boosting future earnings.

Such a phenomenon may well influence management to prefer projects with short-term benefits at the cost of ignoring longer-term projects with even larger benefits but which take more time to benefit reported earnings. . The flexible budget is a poor benchmark. The master budget Is all that is necessary. Give me your thoughts on these two statements. The flexible budget and master budget serve two different purposes. The master budget is a planning device, while the flexible budget is a control device.

The master budget is the benchmark, or goal, based on all the information available at the time of preparation. It gives the profit goal for the upcoming period, based on an estimated level of activity. Although the firm may aim for that estimated level of activity, it may achieve above or below it. The flexible budget is then used to determine what revenues and costs should have been, given the actual activity level attained for the period.

The use off flexible budget allows managers to separate volume variances from those due to differences in unit selling prices, unit variable costs, and fixed costs from the master budget. 4. Multi-Nationals around the world use master budgets, but there is considerable variation in who is involved in the process. In some countries, companies frequently use top-down budgeting while others use participative budgeting. Why it Is Important to know who within each company is

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