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Budgeting Essay

883 words - 4 pages

Budgeting terms:

Feedback control:
In the context of budgeting, this could create a dynamic self regulating system where the actual result for a period are compared with what should have been achieved and thew difference used to initiate remedial or capitalizing action. This could mean a change in methods of operation, or change in the budget itself.

Feedfoward controls:
Such as system is defined by Bhasker and Housden as a 'measurement and prediction system which asseses assesses the system and predicts the output at some future date'.

Budgetary slack:
As defined by Schiff and Lewin as the difference between the total resources available to the firm and the total resources necessary to achieve the organizational goal.
In essence it implies a potential for underutilization of resources and under achieving by executives such executives create slack in their budgets by underestimating revenues and over stating costs.This in the context of participatory budgeting will cause an extra allocation of resources to give greater flexibility in the achieving of goals.

Aspiration Level:
This is defined in EH Caplan "Management Accounting- and Behaviorial science' as a managers internal expectation of his own performance. Evidence suggests that repeated failures will cause a lowering of expectations while repeated successes will inspire the recipient on to greater things.

Control Limits:

Are defined in the CIMA terminology as "limits in exception reporting in quantities or value outside which special managerial action is triggerd".

The necessary preliminary steps before commencing to prepare budgets include:
- consideration for the longer term plan for the business and setting goals from such aspects as market share profit and capital investment..
- Confirmation if the organization, structure of the business, including profit costs and investment centers. Where necessary this will be linked with statement of cost and transfer pricing.
- Issue of budget instructions
- Preparation of forecasts of the relevant exogenous conditions for the budget period (and possibly for some additional period)this may be regarded as either preliminary work or the first step in budget development.

The implementation and operation of systems of budgeting and budgetary control are very time consuming. The likely difficulties to be encountered when introducing budgetary control systems are:

The lack of background information, especially if the company has not had a good record keeping system.

The lack of knowledge by managers in the preparation of budgets and of financial matters.

Overlapping responsibilities which makes it difficult to hold managers responsible for specific tasks and therefore affects the timeliness of the budget.

|Lack of real relegation especially in private businesses where the proprietor or owner manager has the objectives he wishes to achieve in mind and strategies he intends to adopt.

Suspicion that the budget co-ordinator would...

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