...Budget For Planning and Control An integral part of the modern business enterprise, budgeting not only aids in the planning process, but it also provides an array of accounting measures that can be used to hold managers accountable for the firm's performance. By Richard Sansing A budget is a projected set of consequences of carrying out planned activity. Firms use budgets to facilitate the communication of specialized information from throughout the firm so that an internally consistent production plan can be devised. The budgeted numbers are then used to record certain transactions. Differences between budgeted and actual performance then appear in the accounting records, and can be analyzed so as to evaluate the performance of the firm. The budgeting process interacts with the operations research process in two ways. First, the budget process facilitates the transfer of both accounting and non-accounting information to those involved in operations. This information provides a basis for the formulation of the firm's production plan. Second, the budget reflects the production plan, and becomes a benchmark for subsequent performance evaluation. An analysis of deviations from the budget provides additional information that can be used when formulating the next period's production plan. The Planning Stage Feldman Toy Company makes two types of toys, regular and deluxe. Each toy requires the use of machine time in the production process. To illustrate the way the budget...
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...THE EFFECT OF BUDGETARY CONTROL ON EFFCTIVENESS OF NON GOVERNMENTAL ORGANISATIONS IN KENYA REBECCAH NYAMBURA KIMANI A RESEARCH PROJECT SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE AWARD OF THE DEGREE OF MASTER OF SCIENCE FINANCE, SCHOOL OF BUSINESS, UNIVERSITY OF NAIROBI OCTOBER 2014 DECLARATION I declare that this project is my original work and has not been submitted for examination in any other university. Signed………………………………………Date…………………………………… REBECCAH NYAMBURA D63/71147/2014 This project has been submitted for examination with my approval as the university supervisor Signed………………………………………Date…………………………………… MR. MIRIE MWANGI Lecturer, Department of Finance and Accounting School of Business University of Nairobi ACKNOWLEDGEMENT I am deeply indebted to all those who in their own way contributed to successful completion of this study. First and foremost I thank the almighty God, to whom all knowledge, wisdom and power belong for sustaining me in good health, sound judgment and strength to move on and complete my master’s studies. Special appreciation goes to my supervisor for his dedication, guidance, valuable suggestion and ideas throughout the course of this project. Without his enormous support this study would not have been successful. Thanks to my family who always inspired me in every step to accomplish this study. I am eternally grateful for your love, encouragement and support in all my endeavors. DEDICATION I dedicate this project to my...
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...Question 2 A budget is defined as a plan of operations based on a given estimate of expected income and expense in the future. As such, it is thought of as an action plan, outlining an organization's financial and operational goals. The budget expresses the quantitative arrangement of the entity's management, in terms of allocating the business resources, performance evaluation, and formulating prospective plans. Businesses alike hold this as an annual undertaking, putting into account the company's past year's budget and subsequently previewing projections for the next couple of years (however often occurring short-term, in about a year or less.) Budgets provide control over the instantaneous environment, help to master the financial aspects of the job and department, while at the same time administering solutions to problems before they occur. They focus on the importance of assessing alternative actions before decisions are actually implemented. Budgeting serves as a means of systematically planning and control. This will require a realistic financial documentation of the company's goals and performance objectives. Upon formulation, the analysis provides adequate development throughout the fiscal year. Consequently, monthly performance reports compare budgeted results against actual stats. The management then examine these and set out to take necessary corrective actions against significant variances. This is known in the accounting world as budgetary control. Also, allowing...
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...consideration that should be prepared in the setting up for a budgetary planning and control system, and also discusses the advantages and disadvantages of the participation in the budgeting process. Other than that, also discuss the reasons why managers may be unwilling to participate in budgeting process. First of all, it had briefly defined the terms, like budget, budgeting planning and control system. A simple way to define budget as it’s a plan for future or any plan for upcoming period. In the study of financial management, budget can be defined as an in depth plan showing how to acquired and utilize the resources during a particular time period. It signifies a plan for the future expressed in measureable, proper terms (Ward, 1994). Generally, there are two broadly used of budgeting, which are top-down budgeting and bottom-up are budgeting. A top-down method to budgeting reflects a controlling style of management. This is meaning of where the senior managers decide the budget with limited input from subordinate employees. Other than that, participative budgeting, also known as bottom-up budgeting, it inspires organization-wide input into the budget process. This is the meaning of where the subordinate employees get involved the decision making of budgeting with the senior managers by providing different levels of opinion to the upper levels in the budget process. Budgeting planning is about the planning process within an organization and it’s considering the role...
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...There are several approaches that may be used to develop the budget. Managers typically prefer an approach known as participative budgeting. Discuss this form of budgeting and identify its advantages and disadvantages. Ans. Also called bottom-up budgeting or self-imposed budgets, where the initial flow of budget data moves from lower levels of responsibility to higher levels of responsibility. Each person with responsibility for cost control will prepare his or her own budget estimates and submit them to the next higher level of management. These estimates are reviewed and consolidated as they move upward in the organization. Budget estimates prepared by lower-level managers should be scrutinized by higher levels of management. Without such a review, participative budgets may be too loose and allow much "budgetary slack." The result will be inefficiency and waste.. Advantages: 1. Individuals at all level of the organization are recognized as members of the team whose review and judgments are valued by top management. 2. Increase feeling of unit-level ownership in the budget 3. Leads to greater support for the budgetand a greater understanding of goals 4. Greater accuracy of budget estimates. Budget estimates prepared by front line managers can be more accurate and reliable than estimates prepared by top managers who are removed from day to day activities and who have less intimate knowledge of markets and operating conditions...
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...One approach advocates improving the budgeting process and primarily focuses on the planning problems with budgeting. The other advocates abandoning the budget and primarily focuses on the performance evaluation problems with budgeting. This paper provides an overview and research perspective on these two recent developments. We discuss why practitioners have become dissatisfied with budgets, describe the two distinct approaches, place them in a research context, suggest insights that may aid the practitioners, and use the practitioner perspectives to identify fruitful areas for research. INTRODUCTION udgeting is the cornerstone of the management control process in nearly all organizations, but despite its widespread use, it is far from perfect.1 Practitioners express concerns about using budgets for planning and performance evaluation. The practitioners argue that budgets impede the allocation of organizational resources to their best uses and encourage myopic decision making and other dysfunctional budget games. They attribute these problems, in part, to traditional budgeting’s financial, top-down, commandand-control orientation as embedded in annual budget planning and performance evaluation processes (e.g., Schmidt 1992; Bunce et al. 1995; Hope and Fraser 1997, 2000, 2003; Wallander 1999; Ekholm and Wallin 2000; Marcino 2000; Jensen 2001). We demonstrate practitioners’ concerns with budgets by...
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...must keep their costs under control. Firstly it will examine key types of planning and budgeting along with how they are interconnected. Secondly it will focus upon how a business might prepare its annual master budget, including how budgeted balance sheets, cash budget and budgeted income statements affect the overall master budget. Finally it will examine potential behavioural issues that might arise within a business. When managing a company’s finance the use of planning, control and budgeting are all equally important and interconnected with one another. In effect, when a company keeping a tight rein on cash flow, fixed costs and variable costs through the use of planning and budgeting, it will consequently allow the company to better control its profit margin. When conducting research on the importance of planning and control Kay states: Control and planning are interrelated so closely that they cannot be separated from each other. Without control all the planning is fruitless because control consists of the steps taken to ensure that the performance of the organization conforms to the plans. (Kay, 2012) Kay indicates that what has been previously written about within this essay is correct; additionally it suggests that both are directly interconnected with one another. Planning can be broken up into two main sections for a business, short term planning and long term planning. Dependent upon what task the...
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...role in planning process? Fabio Frezatti a,⁎, Andson B. Aguiar a,b,1, Reinaldo Guerreiro a,2, Maria A. Gouvea a,2 a University of Sao Paulo, School of Economics, Business Administration, and Accounting, Av. Prof. Luciano Gualberto 908, FEA3, Cidade Universitária, São Paulo City, 05508-900, State of São Paulo, Brazil b Fucape Business School, Av. Fernando Ferrari, 1358, Boa Vista, Vitória-ES, 29075-505, Brazil a r t i c l e i n f o a b s t r a c t This study examines the relationship between management accounting and planning profiles in Brazilian companies. The main goal is to understand the consequences of not including a fully structured management accounting scheme in the planning process. The authors conducted a field research among medium and large-sized companies, using a probabilistic sample from a population of 2281 companies. Using analytic hierarchy process (AHP) and statistical cluster analysis, the authors grouped the entities' strategic budget planning processes into five profiles, after which the authors applied statistical tests to assess the five clusters. The study concludes that poor or fully implemented strategic and budget-planning processes relate to the management accounting profiles of the Brazilian organizations studied. © 2009 Published by Elsevier Inc. Article history: Received 1 March 2009 Received in revised form 1 September 2009 Accepted 1 November 2009 Available online xxxx Keywords: Management accounting Strategic planning Budget 1. Introduction...
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...Mälardalen University School of Sustainable Development Of Society And Technology EFO705-Master thesis BUDGETARY AND MANAGEMENT CONTROL PROCESS IN A MANUFACTURING: CASE OF GUINNESS NIGERIAN PLC. BY: AMALOKWU OBIAJULUM JOHN LAWRENCE NJILEFACK NGOASONG ABSTRACT Date Level Authors : : : June, 2008. Master Thesis EF0705, 10 points (15credits) Amalokwu Obiajulum John (820821) Lawrence Njilefack Ngoasong (770901) Title : Budgetary and Management control Process in a Manufacturing Organization. Roland Almqvist. What is the budgeting practice in the Nigerian Manufacturing companies? The aim of this study is to investigate the management control practice (budget being the tool for management control) in Guinness Nigeria Plc and to suggest what seems to us the most appropriate practice based on findings from literatures and empirics Supervisor: Problem Purpose : : Method : The study was described based on a qualitative approach. Furthermore, we described why we chose the company, sources of literature, techniques employed in data collection (primary data), research purpose, data analysis as well as critiques to the method use. Conclusion : The Integration of strategic Management and Budgeting enhances competitiveness which when attained is translated as high performance. Keywords : Management Control, Budgeting, strategy, High performance and Competitive advantage. ACKNOWLEDGEMENT Firstly we give thanks to God Almighty for the strength to work on...
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...business will be ineffective without the preparation and use of budgets”. What is budgeting? Budgeting is the continuous cycle of planning and evaluation used by a company in order to achieve the stated goals and objectives of the organization. The process of allocating a finite amount of resources to the prioritized needs of the organization and a tool we use to control spending decisions. An entrepreneur needs to plan for his business’ future and he/she must plan for the future. Budgets usually show a clear representation of how the business wishes to spend their funds in the future. Many businesses create budgets on an annual basis in order to carefully outline the expected requirements of various departments in the company. With the annual budget process it also reduces the amount of time businesses spend for the creation and management of capital. While larger companies accountants or other professionals have employed to create a business budget, small business owners are usually responsible for the implementation of this feature alone. “A budget is just a method of worrying before you spend money, as well as afterward." (NA, 2013) The role of budgeting in the management of a company is very effective when it is related to the fundamentals of management. The many existing definitions of the operations usually expressed in terms of the five main functions: planning, organizing, staffing, management and control. Management must plan first. Organizing, the staff and management...
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...WEALTH CREATION INTRODUCTION Budget, as we know is a formal business plan. It is a detailed plan showing how resources will be acquired and used over some specific time interval. Budgeting provide definite expectations that are the best framework for judging subsequent performance. Budgeting aids mangers in coordinating their efforts, so that the objective of the organization match the objective of its parts. Having plans and goals for your financial future is essential for any person’s financial and general well-being, whether they are employed in a business, or run a business themselves. A budget is a quantitative expression of a plan for a defined period of time. It may include planned sales volumes and revenues, resource quantities, costs and expenses, assets, liabilities and cash flows. It expresses strategic plans of business units, organizations, activities or events in measurable terms Budget and wealth creation concepts As we all know that a budget is a financial plan that set goals and target that governor the activities of the company. Wealth on the other hand, is the abundance of valuable resources or material possessions. All wealth is transient. The United Nations definition of inclusive wealth is a monetary measure which includes the sum of natural, human and physical assets. Concepts of wealth also vary across time. Modern labor-saving inventions and the development. The impacts of budgeting on wealth are: 1. It control resources 2. It communicates...
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...independent company to a part of a multinational corporation (MNC), Galvor had to change its planning and control system to comply with UE. 2. Planning and control system for Galvor as an independent company: The essential purpose of a company’s planning and control system is to make managers think long-term strategically, to provide a framework for budgeting, to allocate resources, to facilitate communication and coordination among different departments, and to evaluate managers’ performance. For an independent Galvor company, top management’s needs were quite simple. Management was, in essence, a personal thing. Mr. Latour, was intimately familiar with most aspects of the business, such as production, marketing. He would handle all financial matters, even routine jobs, make pricing decisions, and exercise overall cost control. Moreover, as a founder and owner of the company, he had the motivation to work hard and think long term in the company best interest. Besides, in the small Galvor where there were relatively few employees and the chief executive knew all or most of them personally, compensation administration would be informal. Raises were ad hoc, and merit increases would be based on performance evaluation by impression rather than by explicit ratings on predetermined factors of performance. Thus Galvor would only need simple, informal, and less-staff planning and control practices. Everyone essentially...
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...TAYLOR STUDENT ID: R1402D57229 DATE: 25-11-2015 ASSIGNMENT TWO Part 1- Planning and Control 1) The primary purpose of a budget The primary purpose of a budget is to serve the needs of management in respect of the judgments and decisions it is required to make and to provide a basis for the management functions of planning,c ontrol, communication and motivation. J R Dyson noticed the following about the usefulness about a budget: It forces management to look forward rather looking back, it encourages management to examine what they have done in relation to what they could do and prominently budgeting helps management in control through the constant comparison of actual results with budgeted results, and then taking any necessary corrective action. Dyson J R (Accounting For Non-Accounting Students. Pg. 377). From the above the main purpose (considering the question) is all of directing, giving attention, problem solving and a few more like control and motivation. Budgets aid planning, which gives a business direction. A budget takes the organizational plan (goal and objectives) and quantifies this into something tangible to aim for. Budgets, by defining where the business is going and how it would get there help management and employees alike to focus. Some budgets even go further in reinforcing this focus by listing what will not be done in the period it will cover. Budgets tend to promote forward thinking and the possible identification of short-term...
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... 18. Benefit of (bep) 19. Assumptions in (bep) 20. Computation of bep in units and in value 21. What is the effect on a firm’s (bep) of a lower income tax rate? 22. Can break even analysis to be used to determine the sales level that is needed in order to earn a target net profit? 23. Break even point graph 24. Definitions of sales mix 25. What’s the effect on the company’s profits? 26. What is the assumption in the basis? 27. How to calculate and example? 28. How does sales mix affect the contribution margin? 29. Definition of mos 30. How to compute of mos? 31. Usefullness of (mos) 32. Can (mos) be negative? BUDGETING 1. What is definition of budget? 2. What is purpose of budgeting? 3. What are the objectives of budgeting? 4. What are the advantages...
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...A budget is a detailed plan outlining the acquisition and use of financial and other resources over a given time period. As such, it represents a plan for the future expressed in formal quantitative terms. Budgetary control involves the use of budgets to control the actual activities of a firm. 7-2 1. Budgets provide a means of communicat-ing management’s plans throughout the organi-zation. 2. Budgets force managers to think about and plan for the future. 3. The budgeting process provides a way of allocating resources to those parts of the organi-zation where they can be most effectively used. 4. The budgeting process can uncover poten-tial bottlenecks before they occur. 5. Budgets coordinate the activities of the entire organization by integrating the plans of the various parts. Budgeting helps to ensure that everyone in the organization is pulling in the same direction. 6. Budgets define goals and objectives that can serve as benchmarks for evaluating subse-quent performance. 7-3 Responsibility accounting is a system in which a manager is held responsible for those items of revenues and costs—and only those items—that the manager can control to a signifi-cant extent. Each line item in the budget is made the responsibility of a manager who is then held responsible for differences between budgeted and actual results. 7-4 A master budget represents a summary of all of management’s plans and goals for the future, and outlines the way in which these plans are to be...
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