Budget Analysis for Better Management

The assignment content is about the final project part II budget analysis submission for ACC 202 course at Southern New Hampshire University. The report discusses the initial budget process, budget variances and potential reasons for variances, changes and accomplishments, and ethical considerations. It also touches upon make or buy decisions, including considerations required in a make or buy decision, implications of making or buying decisions, and advantages and disadvantages of using non-financial measures such as customer satisfaction and employee involvement.

ACC 202: Final Project Part II Budget Analysis Submission
YOUR NAME
Southern New Hampshire University
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Contents
Introduction..........................................................................................................................2
Body Context.......................................................................................................................3
Conclusion...........................................................................................................................5
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Introduction
In this paper, discussion about budget process, make or buy decisions and non-financial
measures that business organisation uses has been taken place. This information is used in the
decision-making process by managers and management of the business organisation. This report
is in continuation of the previously submitted report and more advanced level has been covered
in this report.
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Body Context
Initial Budget Process
Budgeting process starts with the concept of estimating future events and their related
income and expenses. The initial budget process is to estimate income and expenses for certain
period of time and for certain activities or business operations that business organisation
undertakes. At initial level of the budgeting process, forecasting future events and their related
financial impact on business operation takes place. Operating budget is prepared for the first time
by the business organisation the all other budgets are prepared from that.
Budget variances and potential reasons for variances
Once the budget is prepared, they are implemented by the business managers at different
levels of organisation. Once business operations are completed and actual results of operations
are available, then they are compared with budgeted figures. The difference between budgeted
figures or operation and actual figures or operation is known as variances. Variances can be of
two types, favourable and unfavourable. The wrong estimation can be the reason for variances
i.e. estimating wrong budgeted figures either of expense or income. Assumptions made at the
time of making a budget and the actual assumption is another potential reason for variances.
Some other reasons can be changed in the inflation rate, change in the price of goods or services,
change in capacity level and many other operational reasons (Ray & Jenamani, 2016).
Changes and accomplishment
Material efficiency variance reflects the difference between budgeted and actual quantity
purchased during the budgeted period. Therefore, changes shall be made related to procurement
and supply of material that purchases manager undertakes. Since the material efficiency variance
is unfavourable that means more quality is used in actual production as compared to budgeted
quantities. In this case, Peyton shall make a contract for the price of material that they use.
Another step is to change purchase manager or penalise him / her for not achieving the budgeted
figures (Ray & Jenamani, 2016). These changes will accomplish better management and
adherence with budgets. On the other hand, labour efficiency has been hampered as there is
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unfavourable labour efficiency variance. In this case, human resource manager shall be
responsible for lower utilisation of labours in the production process. In this case, training and
development sessions shall be conducted for labours, in order to enhance their efficiency.
Ethical Consideration
There are some ethical considerations while taking such decisions of change on the basis
of variance analysis. While making contact with material quantity, management of Peyton does
not allow the material supplier to incorporate market changes. This will stop or reduce growth
opportunity of material supplier and of Peyton as well as both of them will not be able to change
according to shift in the market. On the other hand, providing training and development to
labours is a sign of good ethics on part of Peyton (Nobles, Mattison & Matsumura, 2014). These
changes are recommended for better management of business operations and to manage
operations in an effective manner.
Make or Buy Decision
Considerations required in a make or buy decision:
 Quality and quantity
 Cost of making and buying
 Taxation and other legal aspects
 Ethical consideration (labour union)
 Capacity and operational ability of business organisation
 Availability of resources for making product and cost of same
Ethical consideration in a make or buy decision can be of unemployment if Peyton takes
buy decision over in-house production (Arya, Mittendorf, & Dae-Hee, 2014). Business
expansion is another ethical consideration that motivates or dive Peyton to take the decision of
making in-house. The implication of making or buy decisions are:
 Comparison of cost of making or buying
 Related benefits of making and buying
 Nature of activities contracted or buying
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Making decision will make a positive impact on business operations since it will help
management to plan for future but this will make a negative impact on administrative activities
as there will be more things to manage for Peyton and vice-versa for buying decision (Arya,
Mittendorf, & Dae-Hee, 2014).
Customer satisfaction: Advantage is that; Peyton will be able to understand customers
need and expectation of customers and this will help in achieving better results. The
disadvantage of this measure is that this involves huge cost and time.
Employee involvement and satisfaction: Advantage is that; this will motivate employees
and labours to work with maximum efficiency. The disadvantage of this measure is that this
requires detailed analysis of employees and higher expenses.
Conclusion
It can be concluded that budget analysis requires a systematic analysis of business
operations and initiate with operating budget. Variance analysis is required for making effective
decisions for better management. Make or buy decision is based on various considerations and
management is required to undertake all of them. At last ethical consideration is most important
in the case of make or buys decision and in decisions take on the basis of variance analysis.
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References
Nobles, T. L., Mattison, B. L., Matsumura, E. M. (2014). Horngren’s financial and managerial
accounting (4th ed.). Upper Saddle River, NJ: Pearson Education, Inc.
Arya, Anil, Mittendorf, Brian, & Dae-Hee Yon. (2014). Revisiting the make-or-buy decision:
Conveying information by outsourcing to rivals.(Report). Accounting Review, 89(1), 61-
78.
Ray, & Jenamani. (2016). Mean-variance analysis of sourcing decision under disruption risk.
European Journal of Operational Research, 250(2), 679-689.
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