ACC 311 Strategic and sustainable accounting
Answer 1
Budget is a financial quantified plan of processes for future to achieve objectives. The term budget is associated with the estimated figures regarding sales, production, cost, profit etc for future and requires planning, coordination, control etc. This is a part of a process of planning and control. There are five major budgetary systems that can be discussed to get a clear view. They are as follows- 1) Traditional Budget
2) Activity based budget
3) Zero based budget
4) Fixed and flexible budget and
5) Rolling budget
ACC 222EXTERNAL REPORTING IIBudget is a financial quantified plan of processes for future to achieve objectives. The term budget is associated with the estimated figures regarding sales, production, cost, profit etc for future and requires planning, coordination, control etc. This is a part of a process of planning and control. There are five major budgetary systems that can be discussed to get a clear view. They are as follows- 1) Traditional Budget
2) Activity based budget
3) Zero based budget
4) Fixed and flexible budget and
5) Rolling budget
Traditional Budget
This is estimated depending on previous experiences. It bases on the current year’s results and some extra amount of growth estimation. The traditional approach is known as incremental budgeting. It is mainly concerned with the additional costs and revenues for the upcoming period. This is suitable for staff salaries which can be estimated on the basis of previous record. Advantages-
I. Quickest and easiest approach of budgeting.
II. Suitable for the company which is consistent and there is no chance of any significant change. Disadvantages-
I. Inefficient because of not being updated with current information. As a result, the problems may exist. II. Managers may not control the cost and spend all the amount of budget to get the same amount for future which may encourage hidden loss for the company. Fixed and Flexible Budget
On the basis of volume estimation fixed budget will remain steady. Usually it is at the planning stage, not adjustable and realistic. Flexible budget is planned to set with the level of activity and different cost behaviour pattern (fixed, variable, semi-variable etc). It can be useful at planning and controlling stage. End of the financial period, the actual results can be compared with the plan which should have been achieved. Flexible budget is an important factor in budgetary control. Zero Based Budgetary System
The process starts from the basic to allocate resources more effectively is Zero based budget (ZBB). It does not accept the assumption of traditional budget. Normally ZBB follows defined decision packages, evaluated and ranked packages and allocated resources. It is suitable for direct manufacturing expenses. Advantages-
I. it reduces waste of costs
II. it can be started from the very basic stage of expenditure and slowly driven to downwards. III. It improves motivation and respond to changes in business environment IV. It provides appraisal of organisational operations
V. more efficient for allocating resources
Disadvantages-
I. this is beneficial for short-term but not good enough for long-term organisation II. it requires time, effort, experience and skill
III. classify the activities is very complicated
ACC 202 Management Accounting
ACC 200 Introduction to Management AccountingRolling Budget
To become updated or changed with a situation or be more efficient with the time rolling budget normally is handful which is known as continuous budget. Company can follow the rolling budget by updating the numeric figure or removing the difficulties which company can come from another budgetary system. It normally made for a whole budgetary period because of updating it can be made even twelve times in a financial year but every time it will be done for twelve months. Rolling budgetary system has some advantages and disadvantages. Advantages
I. There is a scope to monitor and re-evaluate in a regular basis which leads to be up to date with the current situation and demands. II. By using detailed planning and control process for a short period of time, the chance of uncertainty reduces. III. Planning and control will be based on up to date information which is more efficient rather than a fixed budget. IV. It has a better motivational influence on managers.
V. It always gives a realistic forecast for several months ahead. Disadvantages
I. It requires more time, effort and cost.
II. It can lose it’s importance to the managers because of doing the same work repeated times. III. Revision requires costs as well.
Activity Based Budgeting
The budget defines particular activities and each of their costs to decide how much resource should be allocated is called activity based budget. For example, ordering cost (each) related with number of order so the cost driver will be- Ordering cost of each item =total ordering cost
number of orders
ABB
A method of budgeting in which potential cost drivers of an organization can be identified and evaluated to create an accurate financial forecast is Activity Based Budgeting. The factors determine the costs of an activity are called cost drivers. The cost drivers include ordering, materials handling, machining, assembling, production scheduling and dispatching. The activities must be prioritized according to their ability to add value. Advantages
Advantages:
1. To detect and improve the business cost policies ABB comes with opportunity to reach the objectives. 2. It provides accurate financial data which makes the forecast more accurate. 3. It produces organization’s deliverables which is associated with the costs. 4. It identifies the critical success factors, helps to perform better and monitor them for overall success. Disadvantages:
Rolling Budget
The budgets which need to be repeated or rolled over continuously, updated with financial period of time adding or deducting some information when the most recent budget period is completed are known as Rolling Budget. It gathers idea and information from the existing budgets that may save money and time to realize the result. For the reasons organization decide to go for rolling budgets are given below- To compete with other similar organizations when needed.
To cope up with the new technology and improve productivity, cost of labour and enrich the quality of goods or services. To adopt with financial environment
Advantages:
1. In this budget planning and controlling become accurate which reduces the chance of uncertainty because of assessing the budget regularly to be up to date. 2. This is more realistic and easy to adopt in the bottom line management which may lead an excellent outcome. 3. It does not involve a huge investment of cost and time for planning and controlling because it requires extension (normally 12 months). 4. Rolling budget helps to be more responsive and flexible with the unexpected changes and allows taking decision accordingly for future.
ACCT305 Accounting Managerial Control Disadvantages:
1. Repetition can demotivate the bottom level management because of frequent change in targets. 2. Rolling budget is not suitable where the changes are constant such as IT business. 3. An unexpected change can affect the whole budget.
Example of a stable company: The Ferrero Group, innocent
A stable and static business does not have to-
i. think about alternative product or services frequently,
ii. struggle to compete with the competitors,
iii. change target
In this situation, the traditional budgeting approach can be useful.
INFS21600 Management Information SystemBut the activity based budgeting should be conducted at least once in a life time to get the accurate financial figures for each and every cost driver. After that the business can go back to the incremental budget method. On the other hand, it can go for the rolling budget. For an example, The Ferrero Group is specialised for the chocolate. It is a one of the most stable company in food industry. Recommendation for a rapidly changing, dynamic, innovative company: samsung Demand and of technology industry is changing every moment. Traditional approach budgeting is inefficient for not being updated with the current information which is vital element of rapidly changing, dynamic and innovative
References
http://www.ferrero.com/
http://kfknowledgebank.kaplan.co.uk/KFKB/Wiki%20Pages/Rolling%20Budgets.aspx
To become updated or changed with a situation or be more efficient with the time rolling budget normally is handful which is known as continuous budget. Company can follow the rolling budget by updating the numeric figure or removing the difficulties which company can come from another budgetary system. It normally made for a whole budgetary period because of updating it can be made even twelve times in a financial year but every time it will be done for twelve months. Rolling budgetary system has some advantages and disadvantages. Advantages
I. There is a scope to monitor and re-evaluate in a regular basis which leads to be up to date with the current situation and demands. II. By using detailed planning and control process for a short period of time, the chance of uncertainty reduces. III. Planning and control will be based on up to date information which is more efficient rather than a fixed budget. IV. It has a better motivational influence on managers.
V. It always gives a realistic forecast for several months ahead. Disadvantages
I. It requires more time, effort and cost.
II. It can lose it’s importance to the managers because of doing the same work repeated times. III. Revision requires costs as well.
Activity Based Budgeting
The budget defines particular activities and each of their costs to decide how much resource should be allocated is called activity based budget. For example, ordering cost (each) related with number of order so the cost driver will be- Ordering cost of each item =total ordering cost
number of orders
ABB
A method of budgeting in which potential cost drivers of an organization can be identified and evaluated to create an accurate financial forecast is Activity Based Budgeting. The factors determine the costs of an activity are called cost drivers. The cost drivers include ordering, materials handling, machining, assembling, production scheduling and dispatching. The activities must be prioritized according to their ability to add value. Advantages
Advantages:
1. To detect and improve the business cost policies ABB comes with opportunity to reach the objectives. 2. It provides accurate financial data which makes the forecast more accurate. 3. It produces organization’s deliverables which is associated with the costs. 4. It identifies the critical success factors, helps to perform better and monitor them for overall success. Disadvantages:
Rolling Budget
The budgets which need to be repeated or rolled over continuously, updated with financial period of time adding or deducting some information when the most recent budget period is completed are known as Rolling Budget. It gathers idea and information from the existing budgets that may save money and time to realize the result. For the reasons organization decide to go for rolling budgets are given below- To compete with other similar organizations when needed.
To cope up with the new technology and improve productivity, cost of labour and enrich the quality of goods or services. To adopt with financial environment
Advantages:
1. In this budget planning and controlling become accurate which reduces the chance of uncertainty because of assessing the budget regularly to be up to date. 2. This is more realistic and easy to adopt in the bottom line management which may lead an excellent outcome. 3. It does not involve a huge investment of cost and time for planning and controlling because it requires extension (normally 12 months). 4. Rolling budget helps to be more responsive and flexible with the unexpected changes and allows taking decision accordingly for future.
ACCT305 Accounting Managerial Control Disadvantages:
1. Repetition can demotivate the bottom level management because of frequent change in targets. 2. Rolling budget is not suitable where the changes are constant such as IT business. 3. An unexpected change can affect the whole budget.
Example of a stable company: The Ferrero Group, innocent
A stable and static business does not have to-
i. think about alternative product or services frequently,
ii. struggle to compete with the competitors,
iii. change target
In this situation, the traditional budgeting approach can be useful.
INFS21600 Management Information SystemBut the activity based budgeting should be conducted at least once in a life time to get the accurate financial figures for each and every cost driver. After that the business can go back to the incremental budget method. On the other hand, it can go for the rolling budget. For an example, The Ferrero Group is specialised for the chocolate. It is a one of the most stable company in food industry. Recommendation for a rapidly changing, dynamic, innovative company: samsung Demand and of technology industry is changing every moment. Traditional approach budgeting is inefficient for not being updated with the current information which is vital element of rapidly changing, dynamic and innovative
References
http://www.ferrero.com/
http://kfknowledgebank.kaplan.co.uk/KFKB/Wiki%20Pages/Rolling%20Budgets.aspx
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