< BACHELOR ACCOUNTING>

< JAN 2020>

< BBMA 3203>

< MANAGEMENT ACCOUNTING II>

MATRICULATION NO : <960828016204001>

IDENTITY CARD NO. : <960828016204>

TELEPHONE NO. : <018-4654028>

E- MAIL : <KERTTANA28@GMAIL.COM>

LEARNING CENTRE : <JOHOR>

1.0 Introduction on budgeting system …………………………………. 1-3

2.0 Budget useful as a tool to control costs ……………………………… 3-5

3.0 Implication of on performance of an organization ……………………………… 5-7

4.0 References ………………………………………………………………. 8-9

words,any planning made by the management will be formally stated in the form of figures to be

communicated to members of the organization.A budget is an estimation of income and expenses over a

specified future period of time and is usually complied and re-evaluates on a periodic basis.Budgets can be

made for a person,a business,a government,a country and a multinational organization or just about anything

else that makes and spends money.At companies and organizations,a budget is an internal tool used by

management and is often not required for reporting by external parties.Budget help business track and

manage their resources.Business use a variety of budgets to measure their spending and develop effective

strategies for maximizing their assets and revenues.There are several types of budgets are commonly used

by business.Firstly,a cash budget provide information to a company,among others,cash received and cash

paid.The cash budget,in general can be divided into four main parts which is receipt,disbursement.cash

surplus or deficit and financing.Receipt will list all cash resources of a company,other than

financing.Usually the main source of cash receipts is from sales of goods.Disbursement will list all cash

outflow such as purchase of raw materials direct labour wage payment,overhead payment,sales and

administrative expenses and other disbursement made by the company.Purchase of assets,for example

machines will also be included in the disbursement part.Cash surplus or deficit can be obtained by deducting

receipts and disbursement.If there is a cash deficit,the company need not have to borrow for the purpose of

financing.Conversely,if there is a deficit,the deficit has to be covered thought financing fro, an external

party.Financing will be used when the company is forced to borrow from an external party to finance any

deficit.In additional to itemising the amount of financing receipts,it should detail the repayment terms of the

loan,which consists of the principal and interest.A cash flow budget is a means of projecting how and when

cash comes in and flows out of business within a specified time period.It can be valuable in helping a

company determine whether it’s managing its cash wisely.Cash flow budgets consider factors such as

accounts payable and accounts receivable to assess whether a company has ample cash no hand to proceed

operating,the extent to which it is using its cash productively and its like hood of generating cash in the near

future.Furthermore,a master budget is a budget that summarises all activities planned by each respective
department in an organization.In master budgets,all revenues and expenses will be estimated,which will

enable pro-forma statements to be prepared.The master budget is also the main output of a budget

system,covering all budgets at all operational levels.The master budget will contain all types of budgets in

an organization which would comprise sales,production,distribution and finance.The master budget can be

divided into two groups of budget which is operating budget and financial budget.An operating budget is a

budget that outlines the activities of a firm.Operating budget is a forecast and analysis of projected income

and expenses over the course of a specified time period.To create an accurate picture,operating budgets must

account for factors such as sales,production,labor costs,materials costs,overhead,manufacturing costs and

administrative expenses.Operating budgets are generally created on a weekly,monthly or yearly basis.A

manager might compare these reports month after month to see if a company is overspending on supplies.A

financial budget is a plan that demonstrate how an organization will obtain its financial resources to finance

its operations.The financial budget consists of the cash budget and the budgeted balance sheet.A financial

budget presents a company’s strategy for managing its assets,cash flow,income and expenses.A financial

budget is used to establish a picture of a company’s financial health and present a comprehensive overview

of its spending relative to revenues from core operations.A software company for instance might use its

financial to determine its value in the context of a public stock offering or merger.Many organization

prepare budgets that they use as a method of comparison when evaluating their actual results over the next

year.The process of preparing a budget should be highly regimented and follow a set schedule,so that the

completed budget is ready for use by the beginning of the next fiscal year.Fist of all,review the assumptions

about the company’s business environment that were used as the basis fir the last budget,and update as

necessary.Determine the capacity level of the primary bottleneck that is constraining the company from

generating further sales,and define how this will impact any additional company revenue

growth.Then,determine the amount of funding that will be available during the budget period,which may

limit growth plans.Determine whether any step costs will be incurred during the likely range of business

activity in the upcoming budget period and define the amount of these costs and at what activity levels they

will be incurred.Next,copy forward the basic budgeting instructions from the instruction packet used in the
preceding year.Update it by including the year-to-date actual expenses incurred in the current year and also

annualized this information for the full current year. Issue the budget package personally,where possible and

answer any questions from recipients.Also state the due date for the first draft of the budget package.Obtain

the revenue forecast from the sales manager and then distribute it to the other department managers.They

use the revenue information as the basis for developing their own budget.Obtain the budgets from all

departments,check for errors and compare to the funding and step costing constraints.Adjust the budget as

necessary.Validate all capital budget requests and forward them to the senior management team with

comments and recommendations.Then,input all budget information into the master budget model and meet

with the management team to review the budget.Highlight possible constraint issues and any limitations

caused by funding problems and note all comments made by the administration,forward information back to

the budget originators with requests to modify the budgets.Track outstanding budget change requests and

update the budget model with new iterations as they arrive.Create a bound version of the budget and

distribute it to all authorized receipts.Finally load the budget information into the software so that can

generate budget versus actual reports.

2.0 Cost control is an important factor in maintaining and growing profitability.Cost control also known as

cost management is a broad set of accounting methods and management techniques with the common goal

of improving business cost efficiency by reducing costs or at least restricting their rate of growth.Business

use cost control methods to monitor,evaluate and ultimately enhance the efficiency of specific areas such as

department,divisions or product lines with their operations. Controlling is one of the managerial functions

such as planning,organising,staffing and directing.Control mainly refers to the process of monitoring the

organisation’s activities to make sure that they are according to plan and that objectives are

achieved.​Controls are measurements used to supply information to assist in determining the control action

to taken (i.e, information indicates that unfavourable,labour variance due to unskilled labour).​Control is the

function to ensure that actual work is done to conform to the original intention(I.e, the action that is carried

out to hire only skilled labour).Budgetary control is a system that uses budgets as a means of planing and

controlling.Furthermore,budgetary control is defined by the Institute of Cost and Management Accountants

requirements of a policy and the continuous comparison of actual with budgeted results,either to secure by

individual action the objective of that policy or to provide a basis for its revision.”.Budgetary control

involves the process of setting standards,receiving feedback on actual performance deviates significantly

from budgeted performance.Thus,the control system is designed to measure progress toward planned

performance and if necessary to apply corrective measure.Budgetary control is a tool that the management

use in performing those managerial functions such as planning,coordinating and controlling.Budget planning

is the process by which a company evaluate their earnings and expenses and project their monetary intakes

and outakes for the future.R​evenues are earnings from sales,less the cost of goods sold.During the budget

planning process,use historical data such as prior year financial statements,to set a baseline then consider the

future.The second half of the budget is expenses.Begin with the expenses for the previous year,then adjust

for increased usage,streamlining and inflation.This is a good time to negotiate new contracts with vendors

and to look for ways achieve cost savings.​The goal is to lay out all necessary components and brainstorm

future goals.Budget planning may be completed in one meeting or it may take weeks of evaluating available

data to finalize.Organization can ensure that its plans are achievable,resources are well managed to produce

the output and everything will be available at the right time.Managers can make decisions on the targets for

outputs to be achieved by planning in advance through budget.Cost of the output also can be planned ahead

and changes can be done if necessary and improve the allocation of scare resources.Besides​,b​udgetary

control coordinates the various activities of the organization and requires cooperation of all relevant parties

towards achieving the shared goals.Budgetary control system is an activity which requires coordinated

efforts from different departments and at various levels.To ensure that staff become involved and participate

in a useful and meaningful manner,all efforts need to be coordinated.Since different departments are

involved,conflicts are likely to arise.The organization should develop mechanisms to resolve such conflicts

without affecting the basic objectives.Management must also ensure that people actively participate in the

budgeting process.It is only through active participation that staff feel committed,motivated and encouraged

to work towards the common goals and objectives.Furthermore,Controlling is essential to make sure the
plans and objectives are being met.Control comes after planning and coordination.Management is able to

use budget as a control tool,in order to monitor and compare the actual results.Consequently,actions can be

taken to modify the operation or possibly to revised the budget if it becomes unattainable and they facilitate

corrective actions,whenever there are inefficiencies and weakness comparing actual performance with

budget.Managers can make decisions on the targets for outputs to be achieved by planning in advance

through budget.Cost of the output also can be planned ahead and changes can be don if necessary and

improve the allocation of scare resources.​Budgets can be a motivating factor to pool managers and other

staff together to achieve the objectives of the business.A budget supports a manager’s effort to monitor

operations,identify variances and enact corrective action if necessary.Budget also motivate employees by

participating in the setting of budget.The way the budget is developed and agreed upon and whether it is

perceived as fair and achievable will influence the degree of motivation and rewards can also be linked to

the budget for reinforcement.The linkage of personnel reward to the budget process is an additional

incentive for managers to accomplish departmental goals with pertinent financial constraints.A budget

assigns managers the responsibility for the use of designated financial resources to achieve their assigned

operational objectives.The budget is a tool by which managers compare costs and benefits of activities and

select options that allocate resources appropriately.They require managers of budget centre to take

responsibility for accomplishment of budget targets for the operation under their personal control.Next,a

budget is the yardstick against which actual performance is measured and assessed.Any departures from

budget can be investigated and then,enable remedial or corrective action to be taken as variances

emerge.They facilitate continuous review of performance of different budget centre and economies

management time by using the management by exception principle.Finally,Budgetary control force

management to look into the future to set out detailed plans for achieving the targets for each

departments,operation and each manager.They include managers to anticipate and give the organization

purpose and directing,and guide management in research and development.

specific time period.Although a sales budget is only an estimate of anticipated revenues,it is a vital means of

projecting income based on factors such as economic conditions,competition,production resources and

expenses.Business leaders often create a sales budget first because it establishes a template for other budget

that are critical to a company’s success.A sales budget contains different elements,depending on how a

business is organized.Company’s create this budget using a macro listing of projected sales

number,revenues and the cost to fulfill those sales.In some companies,a sales budget would also include

salaries,bonuses and commissions as well as advertising,promotions and sponsorship.Creating a sales budget

is one of the keys to improving company’s cash flow management.When sales are good,can increase

marketing budget by using a formula that ties increases in spending to sales increases.Can also increase

marketing spending on case-by-case basis so that when sales volume drops off,can reduce sales budget to

maintain a profit margin.Sales budget also directly impacts production budget because the production budget

details how many products,goods or services need to meets sales goals.Without a solid sales

budget,production will suffer.Furthermore, an experienced manager may attempt to introduce budgetary

slack,which involves deliberately reducing revenue estimates and increasing expense estimates so that he

can easily achieve favorable variances against the budget.This can be a serious problem and requires

considerable oversight to spot and eliminate.Further,anyone who uses gaming is essentially being

encouraged to engage in unethical behaviour,which can lead to further difficult related to fraud.There

several conditions are present when fraud occurs.Management or the other employees may have an

incentive or be under pressure,which provides a motivation to commit fraud.The absence of controls or the

ability or management to override controls that provides an opportunity for fraud to be perpetrated.Those

involved in a fraud are able to rationalize a fraudulent act as being consistent with their personal code of

ethics.Some individuals possess an attitude,character or set of ethical that allows them to knowingly and

intentionally commit a dishonest act.Besides, the budget’s goals are the same as managers goals,the actual

performance will meet the expected level of performance or even exceed the expectations.This is called

goal congruence.It refers to the alignment and consistency of individual’s goals with the organization’s
goals.The managers will be motivated to aim for the goals.In the case of goal in congruence,the managers

are not motivated at all.They may put in minimum efforts towards the,budget thus affecting the actual

performance.In the situation whereby the budget is implemented badly,the employee may react adversely to

the budget.This will cause on the actual performance.Usually it does not meet the expected level of

performance and it will affect the organization’s goals and objectives..Besides using budget to forecast the

organization’s coming t\year’s performance,it also serves another purpose.It can be used as a performance

evaluation on the managers actual performance against the budgeted performance. The organization is trying

to use budget as a tool for control.When the performance evaluation is linked with any form of rewards and

penalty system,there are possibilities that the managers will distort any information and data passed to upper

level of management.The managers may underestimate the revenue,over estimate the costs required.It can

have an effect on their job performance,which will be reflected on their annual appraisals.All these will

affect their salary increment,annual bonus,chance of promotion.The behavior towards the budget will be

influenced as the actual performance of budget will either favourable or adverse effect on job

appraisal.Budget is usually prepared either top down or bottom up.Under the top down budget method,top

management prepares the budget and pass on the information to the employee as what they need to do in the

budget.There is no involvement and communication from other employee.When there is participation from

the employee,they become involved in the budgeting process.They form part of the budget.It give them a

sense of commitments and they also foster a sense of belongings toward the budget.When they feel

committed,they will be motivated aiming fir the targets.By encouraging participation from the employee,it

helps to increase motivation levels and reduce resistance level to the budget as well as reduce possible

conflict within organization.It also increases employee initiatives,performance level and their morale on

their jobs.By allowing participation from employee,it is likely the budget’s targets will become the

employee goals.The contribution to the development of the budget.This type of budgeting allows both to

management and its employee to have a better understanding on each others roles and areas of concerns

where budget is concerned.For example,the top management will know whether the targets set is reasonable
and realistic when they hear from employee and employee will know the dilemma the management needs to

consider when they need to make decision between two or more choices.

References

Siyanbola,T., & Tunji. (2013). The Impact Of Budgeting And Budgetary Control On The

Perfotrmance Of Manufacturing Company.In Journal of Business Management &

Social Sciences Research.Retrieved from JBM&SSR website:

https://pdfs.semanticscholar.org/b540/f20e310d7682528ce580f6b0ad688a8192d0.pdf

In-text citation: (Siyanbola & Tunji, 2013)

PDDM, Ibrahim Rihan, MBA. (2020). Cost Control And Cost Reduction Definition Advantages

and Disadvantages Variance analysis Ratio analysis Cost Control Techniques. from
 Academia.edu website:

https://www.academia.edu/7771364/Cost_Control_And_Cost_Reduction_Definition_Ad

vantages_and_Disadvantages_Variance_analysis_Ratio_analysis_Cost_Control_Techniqu

es

In-text citation: (PDDM, Ibrahim Rihan, MBA, 2020)

Anon,(2020).Budgeting as a Tool of Control. (2020). Retrieved from Scribd website:

https://www.scribd.com/document/20901169/Budgeting-as-a-Tool-of-Control

In-text citation: (“Budgeting as a Tool of Control,” 2020)

7.1 Introduction to Budgeting and Budgeting Processes | Managerial Accounting. (2019).

Retrieved from Lumenlearning.com website:

https://courses.lumenlearning.com/sac-managacct/chapter/introduction-to-budgeting-

and-budgeting-processes/

In-text citation: (“7.1 Introduction to Budgeting and Budgeting Processes | Managerial Accounting,” 2019)​​

Cost Control: Meaning, Tools, Techniques and Estimation of Cost Control. (2014, March 3).

Retrieved November 28, 2019, :

http://www.yourarticlelibrary.com/economics/cost-control-meaning-tools-techniques-a

nd-estimation-of-cost-control/28730​

In-text citation: (“Cost Control: Meaning, Tools, Techniques and Estimation of Cost Control,” 2014)
​