Action Plan and Use A Budget for Estimating The Future
Order ID 53563633773 Type Essay Writer Level Masters Style APA Sources/References 4 Perfect Number of Pages to Order 5-10 Pages
Action Plan and Use A Budget for Estimating The Future
According to (Schneider, 2012), the main purpose of budgeting is for planning and controlling. As a result, management can develop an action plan and use a budget for estimating the future. In order to achieve budget goals, businesses rely on employees to manage or participate in budgeting. Many supporters believe this involvement motivates managers and employees. Although many view employee participation as a benefit because employees will assume ownership, increase morale, and desire to increase productively, I disagree that budgeting can benefit companies. One of the disadvantages of budgeting, normally business use performance awards to encourage managers to stay with budget creating the risk of employees cutting corners or budget slack. For example, managers may purchase quality merchandise or service to improve their financial position. For example, in my company there were divisional managers reported impressive profits during the declining housing market. Senior management discovered these divisional managers incorrectly reported cost of sales and the division was actually operating in lost position. According to (Walker, Kenton B. & Johnson, Eric N., 1999), when total compensation is dependent on budgeting creates budget slack or budgeting bias. Resulting in employees to report information assume management expecting and misrepresenting actual results. Causing organization executives to make business decisions based on inaccurate data.
Schneider, A. (2012). Managerial Accounting: Decision Making for the Service and Manufacturing Sectors. San Diego, Ca: Bridgepoint Education, Inc.
Walker, Kenton B., & Johnson, Eric N. (1999). The Effects of a Budget-Based Incentive Compensation Scheme on the Budgeting Behavior of Managers and Subordinates. Journal of Management Accounting Research, 11, 1-28. Retrieved from Business Source Elite
2.”There are generally three benefits from allowing employees to participate in developing the budget: (1) Employees tend to accept the budget as their own plan of action. (2) Participation tends to increase morale among employees and toward management. (3) Employee cohesiveness is increased, and productivity will also increase if dictated by the group norm.”
I have to agree with this quote as the participation and input from employees tends to motivate and allow employees to take ownership of the budget. By allowing members from every department to partake in the planning, you unlock communication within the company. “Get every business unit involved in budgeting so that you don’t have one person driving all the information. You want to take a cross-functional approach internally, while communicating externally with customers, suppliers and vendors so that there are no surprises when you do your budgeting” (Stettner, M. 2011, Apr 11). Employees that help prepare budgets are more committed to achieving the plans, which can result in promotions, raises and other incentives. Managers can see how their departments fit into the puzzle to form a whole company. By streamlining the management processes, proper tracking of metrics increase the probability of successful projections. No one person can do everything their self, therefore, soliciting information and assistance from other department managers or employees can help reduce the risks. Suppliers and vendors can also provide assistance when developing budgets and integrated with the internal information gathered, the budget process can be improved. Resources can be wasted, and focus lost, as well as the budget projections failing. Researching why certain products succeed over others can provide further insight as well.
Schneider, A. (2012). Managerial accounting; Decision making for the service and Manufacturing sectors, San Diego, CA Bridgepoint Education, Inc.
Stettner, M. (2011, Apr 11). Accurate budget forecasts rely on full team efforts. Investor’s Business Daily Retrieved from http://search.proquest.com/docview/1001020802?accountid=32521
3.A standard cost for a product is the amount that management believes one unit of product should cost and consists of a price standard (a generic term indicating price for materials, rate for labor, and rate for factory overhead) and a quantity standard (a generic term indicating quantity for materials, time for labor, and activity or volume for factory overhead)(Schneider, 2012).
The advantages of standard cost are Cost Control, Cost Management, Decision Making, Recordkeeping Cost and Inventory Valuation. Cost control is comparing actual performance with standard performance, (Schneider, 2012. In accounting when there are actual numbers available to use, it gives the decision makers an advantage in making decisions. The cost management aspect is just what it says it is. Managing the operating cost no matter the amount size is how management cost helps an organization run efficiently. Decisions have to be made daily by management. If new analysis had to be done each day, time would be used and that would not be cost efficient. A standard cost system saves recordkeeping costs, not during the initial startup, but in the long-run operation of the system (Schneider, 2012).
One of the major disadvantages of the standard cost system is that it is expensive to install. Installing expensive operating systems is a major decision for an organization. The complexity of the standard cost system is sometimes a reason some companies choose to go in another direction. If a system is difficult to understand, it in turns waste time that could be used doing something constructive.
A company that manufactures a product would benefit most from a standard cost system. With the ability to determine the cost of each product made would help determine profits closer to a actual figure than an estimate. The manufacturing company’s plant would have several department where management would benefit from this type of system.
References: Schneider, A. (2012). Managerial accounting: Decision making for the service and manufacturing sectors .San Diego, CA: Bridgepoint Education.
4.A standard cost for a product is the value determined by management as to what one unit of product should cost, which usually includes the direct materials, labor, and manufacturing overhead costs (Schneider, 2012). Standard cost involves a price standard and a quantity standard. The price standard represents the cost of materials, labor rates, and overhead rates. The quantity standard is the quantity needed of the materials, labor, and overhead costs. There are several advantages to using a standard cost system. This system allows management to make better decisions by monitoring costs and controlling costs. When comparing standard costs with the actual costs, managements might see a variance that will alert them that something is wrong in their calculation or their spending is not aligned with the standard cost. Standard costs also simplifies bookkeeping by recording the standard cost to each process instead of actual costs. There are also disadvantages of standard costing. Using a standard cost leaves little room for unexpected costs that may occur, like spoilage of idle labor time (Schneider, 2012). It may be harder for management to stay close to the standard cost when there are unexpected losses. Furthermore, management will be stricter on employees to reinforce costs and could lead to negative reactions from employees. There may be employees who try cover up spoiled materials or unfavorable losses. Overall, standard costs are most appropriate for companies with standard products or services involving repetitive operations leaving little room for variances (Schneider, 2012).
Schneider, A. (2012). Managerial Accounting. San Diego, CA: Bridgepoint Education, Inc.
Action Plan and Use A Budget for Estimating The Future
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