...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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...P3 Budget Planning budget planning is an assessment of the salary and costs over a particular time of time. Planning is valuable to any organizations as it serves to control and see the execution estimation to their part in arranging. Planning can be partitioned into 2 primary stages, and it is long haul arranged, business level arranging and transient arranged. With planning, organizations or associations can help estimating their arrangement, giving business bearing. A financial plan can give the organizations points and goals arrangement works, and it likewise will help the business to be compelling. By utilizing a financial plan, the organizations can perceive how well they're doing later on, and help the organizations to dodge sudden issues. The imperativeness of observing is it serves to prioritize using and deal with our cash. With checking plan it additionally will help the organizations distinguish inefficient consumptions, accomplish monetary objectives, and adjust rapidly as the money related circumstance change every now and again. Plan have their part in controlling an associations, plan can be utilized to check execution against the targets set in the monetary allowance. With successful plan control the business can meet their points and goals, a funding likewise ought to The imperativeness of planning: • with planning, it will give a system for utilizing assets inside the business. • it will help with forward considering. • it will demonstrate...
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...Budget Planning and Control Anita Wright Professor Mohamed Gurey ACC556 – Financial Accounting for Managers December 11, 2015 Introduction A company I started working for a couple of months ago as a Finance manager is Home Depot. Since I own a home, I know how expensive it is to maintain. I do a lot of shopping there for various items and appreciate the reasonable prices as well as the valuable advice from my associates. The store has everything one could possibly need to help turn a house into a home. Also, during the holiday season you can find items that will make your home festive and cheerful. Home Depot was founded in 1978 by Bernie Marcus and Arthur Blank. Investment banker Ken Langone and merchandising guru Pat Farrah soon joined the founders in 1979 and that year, the first two Home Depot stores opened in Atlanta, GA (Our History, 2015). They were 60,000 square feet and stocked 25,000 items, much more than the average hardware store at that time. The vision for these stores was to have a place where the do-it-yourselfers could experience one-stop shopping for all of their home project needs (Our History, 2015). From the start, associates offer the best customer service in the industry. Not only do they go through rigorous product knowledge training, but they offer clinics to customers that want to learn to do it themselves (Our History, 2015). Today, with over 2200 stores, Home Depot has revolutionized the home improvement industry by bringing the...
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...why you believe that the risk response plan would have a high impact on the project plan. How would you manage the changes in the project plan? According with Wysocki (2009) a project is a sequence of unique complex interconnected activities with one goal or purpose, which must be completed by specific time, within budget and according to a project scope. The saying ‘unique and complex” means that every project on its own is different therefore it will always have risks impacting it throughout its life cycle. Kerzner (2006) defines risk as a probability and a consequence of not achieving a defining project goal or the uncertainty of a possible opportunity may give rise of a risk in the relation to a project. Moreover there will be two major components of such risk: * The probability of occurrence of such event (risk/opportunity) * Impact (or consequence) of the event occurring (what would be at stake), meaning if a probability or consequence increases so will the be risk of such event occur. In order to smoothen the occurrence of risks a risk management plan as to be incorporated and implemented at all phases of a project. This constitute of risk planning, identification, analysis of the quantitative and qualitative impacts, risk response , controlling and monitoring risk systems, or in other words it shall help determine how to plan, execute and control the various activities that might cause direct impact the project. There are several areas of the project that may...
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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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...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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...construction of $2,100,000 and $780,000 for plant equipment. At this point it would appear that with a proposed budget limit of $2,750,000 set by the company’s Board of Directors that we are on target with an estimated total budget of $2,633,532 for the Huntsville Plant Project. As you can see we don’t have very much room (budgetary) for any missteps therefore, it will be necessary for very member of the team monitor and control individual budgets and areas of responsibility. Within the Huntsville project is divided into key project phases and probably the most important phase to ensure the success of the entire project is the planning phase. There a few critical deliverables that must be completed within the ten weeks set aside for planning. Just to point out a few key “must happens” such as; procure the plant’s worksite, obtain all needed permits and approvals and the selection of an general contractor not to say we can relax or slack on any part of the project’s tight budget and schedules, again the planning phase is only ten weeks with a budget of only $285,754 the project’s first test. After the planning phase is the preparation phase were the project is really defined and it is critical to the success of the project that the entire team stay focus on their assigned tasks and the big picture, completion of the Huntsville project on budget and on schedule. We have a budget of $1,822,442 and 47 weeks to prepare the worksite and complete building the new plant. If, we are to...
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...Budgeting Is a Key Component in Management Short and Long Term Planning I agree the statement "Budgeting is a key component in management short and long term planning." Budgeting could let us have a well plan list of our upcoming event’s expenses as well as our current and financial plan. By planning our budget we could also have a better view of our current and future’s expenses cum revenues. Having a budgeting plan company would also be able to identify out if there is any problem occur with the company’s financial states. Limits, expenses limits it’s a definitely need in companies which budgeting helps to show our current assets, cash and how much amount does the company may afford to expend or do investment in their business. Having this budget planning companies will be able to keep track and stay within their calculated budget’s limits. Companies wouldn’t overspend with the list of guidelines; we could use budgets as a guide. In business, budgets help you determine how much money you have and how you will use it, and help you decide whether you have enough money to achieve your financial goals. As part of a business plan, a budget can help convince a loan officer that you know your business and have anticipated its needs. Budgeting may possibly be an advantage for a company to have, as it can help a company on financial and its strategy. In order to make the most effective use of your budgets, you will want to establish reporting devices. These will include...
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...Budgeting is the process of formulating an organisation plans. The most important planning, evaluation and communication benefits depend on an effective budgeting process that engages employees throughout all levels of the organisation. Four major benefits of effective budgeting are: 1. Budgeting provides an opportunity for managers to re-evaluate existing activities and evaluate possible new activities. 2. Budgeting compels managers to think ahead by formalizing their responsibilities for planning. 3. Budgeting aids managers in communicating objectives and coordinating actions across the organisation. 4. Budgeting provides benchmark to evaluate subsequent performance. The advantages of budgeting described previously are limited, in some cases severely, by problems associated with budgets. In this section, three problems that complicate the implantation of budgets: 1. Low levels of participation in the budget process and lack of acceptance of responsibility for the final budget. 2. Incentives to lie and cheat in the budget process. 3. Difficulties in obtaining accurate sales forecasts. What external factors need to be considered? External influences that are not in your control may have an impact on the success of your efforts. Having alternate plans or rethinking your strategies should be a part of your planning. Some external influences that can affect your financial planning include (examples in parenthesis): Government or national policies and legislations...
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...their plants, budgets, and performance in terms of efficiency and effectiveness, because customers can easily purchase from another manufacturer if cost, quality, and service are not met. The planning strength of the Vershire Company is that a sales budget is formulated at the corporate level and starts with a forecast, which is created and sent to the divisional managers for review. This allows divisional managers to have some input for their budget, which will add to the accuracy. Corporate controllers also visit each plant for additional input before final submission. The company I work also formulates a sales budget; we are actually starting the process in October. We look at our historical sales data, our current sales, and our sales targets for the coming year. The sales budget leads to the development of the other budgets, manufacturing, production, purchasing, inventories, sales and other expenses. Our budgets are usually determined by end of November, no later than mid December for the New Year. All departments have input and are responsible for their budgets. Our forecasting and planning efforts are examined on a monthly basis throughout the year as well as daily inputs from the sales quotation department through their quote follow-up efforts. This allows us to keep tighter controls on inventories to keep us within the set budget as well as keep reasonable lead times for the different product lines. The weakness in the Vershire Company’s planning system is the...
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...Cost, Budgets and Strategic Decision Making in Management Accounting Answer (a) Budgets can be characterized as a quantitative explanation, for a certain time period, which may incorporate arranged incomes, cash flow, costs, resources, and liabilities. Budgeting alludes to the procedure of outlining, actualizing, and working budgets. Budgeting, as a control device, gives an activity plan to guarantee that the association's real exercises are slightest digressed from the planned exercises. Budgets are utilized to give an outline of the organization and procedures performed in it. They are helpful in asset allocation where assets are distributed in such a route, to the point that the techniques, which are relied upon to give the most astounding returns, receive top priority (Libby and Murray, 2010). Budgets are additionally forecast instruments and bring about a significant improvement readied to adjust to changes in business atmosphere. They ought to be produced in such a route, to the point that they consider the key necessities of each of the functions. Budget detailing comprises of an arrangement of exercises: a budget department is created in which a budget controller is appointed, strategies are developed for budget readiness, budget recommendations are created at the department level, the budget is developed for the whole company, financial backing period and key budget elements are decided, the budget is evaluated and approved, growth is observed, and the budget...
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...Rhonda Moore According to Merriam-Webster dictionary, a budget can be defined as “the amount of money that is available for, required for, or assigned to a particular purpose”. Many people think of budgeting as something to do when they're short on cash. College students might turn to a budget to figure out how to make due with their high expenses and limited incomes. Two purposes for budgets are planning and control. Planning is a way of constructing the budget to meet the pre determined goal and, it also controls the feedback system to ensure proper execution of the plan. The advantages of budgeting are communication of management plan in the organization, provides guidelines for managers to think and plan for future, allocate resources, uncover bottle necks, co-ordinate activities for entire organization and provide benchmark for evaluation of future performance. Typically budgets can be prepared annually, and they can represent a company’s plan in specific, quantitative terms. A budget can help companies plan for the future. So companies can also take advantage of a budget by shaping the well-organized line for making money and increasing assets. “A budget may span any period of time. It may be short-term (one year or less, which is usually the case), intermediate (two to three years), or long-term (three years or more). Short-term budgets provide greater detail and specifics. Intermediate budgets examine the projects the company currently is undertaking and...
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...Budget Management Analysis John Thorpe HCS/571 April 13, 2014 Professor: Amy Reed Budget Management and Variance Analysis Healthcare organizations are faced with severe financial pressures resulting in extreme budget cuts. Consequently, nurse managers and financial managers are tasked with the responsibility of doing more with less while maintaining the high quality of care offered to its consumers. To accomplish the aforementioned tasks, managers use budgetary tools to help them focus on controlling cost while running an efficient operation. Budgeting gives managers the tools necessary to ensure the availability of required resources to meet the organization’s goals and objectives, communicate strategies and monitor results (Cleverly, Song & Cleverly, 2007). Finkler, Kovner & Jones (2007) offer that budgeting should be used to make the organization become more effective and efficient. It is not a tool for maintaining the status quo. Organizations use different approaches to introducing the budgetary process. Some organizations take the current year's budget update it for inflation and projected revenue growth. Others take a clean slate approach; compel managers to justify their expenses and staffing needs on an annual basis. Still other organizations forecast revenue and profit and assign expense rates to departments. However, the most effective budget is one that reflects the true financial position of the organization, provides flexibility and monitored...
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...Discuss the sequence in which the major components of the master budget are prepared. Why is it necessary to prepare the components in such a sequence? The Sequence for a master budget is as follows: A production budget, purchases budget, personnel budget, direct labor budget, overhead budget, selling and administrative budget, capital budget, and budgeted financial statements. Using this sequence to create a master budget a manager has assistance to align activities and resources allocations with organizational goals; it’s a vehicle to promote employee participation, cooperation, and department coordination. It's also a tool to enhance conduct of the managerial functions of planning, controlling, problems solving; basis on which to sharpen management's responsiveness to changes in both internal and external factors; and model that provides a rigorous view of future performance of a business in time to consider alternative measures. 7. Why is a firm’s production budget influenced by the finished goods inventory policy? The production budget follows from the sales budget and is based on information about the type, quantity, and timing of units to be sold. (A retail or service company would not prepare a production budget.) Sales information is combines with beginning and ending Finished Goods (FG) Inventory information so that managers can schedule necessary production. 8. Assume that in preparing the cash budget, the accountant discovers that a cash shortage will likely occur...
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...activities. Budgetary control is described as the process of planning, controlling, coordinating and motivation through money values and departments within an organization. (Ryan, 2007) Budgetary control is a major feature of management control system in most organisations. The use of budgetary control in performance management has become more significant especially as a more integrative control mechanism in most organisations (YÜCEL and GÜNLÜK, 2007). Thus, this essay will assess the claim on the effectiveness of the budgetary control as a more integrative control mechanism for the organisations and how non-financial performance tool can be used to complement the budgetary control to provide accurate reporting on the performance of the organisation. Organisational and Budgetary Control In an organisation, the goals and objectives may differ in within each department, division and individual. It is important that every individual has to change their behaviour towards achieving organisation’s objective. (Flamholtz, Daz and Tsui, 1985). The organisation’s primary objective is to earn profits. The management uses financial measurement tools such as Economic Value Added (EVA), financial ratios, residual income and Master Budgets etc to measure the performance of each division as well as motivation and control. (Otley, 1999 & 2002) Hence there is a need to have a management control system for planning, goal setting and performance evaluation. The Budgeting Cycle...
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