Role of Senior Management in Budgeting Process

The assignment explores the role of senior management in the budgeting process, highlighting their responsibility in preparing master budgets that summarize all budgets and provide a fair view of financial aspects. It also emphasizes the significance of senior management involvement in setting budgeting frameworks, which is crucial for developing sound master budgets and ensuring effective financial planning.

Introduction to Management Accounting

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
MAIN BODY..................................................................................................................................1
Stating master budget and its process..........................................................................................1
CONCLUSION................................................................................................................................5
REFERENCES................................................................................................................................6

INTRODUCTION
Management accounting is highly concerned with making improvement in the internal
financial aspect and overall performance. This tool of finance is highly significant which in turn
provides input to the team of higher management for decision making. In this, manager applies
financial tools and thereby makes assessment of areas that require improvement. Thus,
management accounting tools and techniques aid in profitable decision making and thereby make
contribution in the growth or success of organization. In this, the present report will provide
deeper insight about aspect of master budget and steps which are involved in the preparation for
same. Further, it will shed light on the extent to which effectiveness of budget influences if
senior management do not participate in such process.
MAIN BODY
Stating master budget and its process
Budget may be served as framework which contains income and expenses that business
unit will earn as well as incur during the specific time frame. Hence, after making in-depth
evaluation of activities which need to be performed during a yearmanager of firm sets budget.
There are several types of budget that can be prepared by business entity namely production,
sales, material, labour, overhead etc. Hence, master budgetis the most effectualbudget which in
turn interconnects or combines all the monetary aspect into one framework. Thus, it may be
served as a yearly budget planning or framework that encompasses all other budgets. One can
also prepare such budget on monthly and quarterly basis.
Master budget is highly based on other specialized or individual budgets namely
operating, capital expenditure and financial. Master budget is highly significant and makes vital
contribution in the planning and control aspect.Moreover, by making comparison of the actual
performance with budgeted aspect manager can easily find out deviations that takes place in
performance aspect. In this way, by assessing the cause of deviation manager would become able
to take suitable action for performance improvement.
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Components of master budget: Such budgeting framework includestwo major types of
budget such as operational and financial which are as follows:
Operational
 Salesbudget:It shows expected number of unit which business unit needs to sell at
specific price level.Thus, sales budget clearly entails information about revenue that firm
will generated during a certain time period.
 Production budget:This framework provides deeper insight about the number of units
which need to be manufactured for meeting customer’s needs. Through the means of
sales forecast and planned amount of finished goods appropriate budget can be framed by
manager regarding production related activities.
 Direct material purchase budget:entails raw inventory which firm requires for ensuring
the smooth functioning of business operations and functions. Thus, by preparing such
budget firm can make proper estimation of cost level.
 Direct labour budget:reflects total cost and labour hours which are needed for production
purpose or activities. By undertaking such budget management can develop plan in
relation to labour force requirement.
 Overhead budget:For performing business activities and functions smoothly company
has to incur some other expenses. Thus, under overhead budget manager includes
information about selling & distribution, administration etc.
Financial
 Cash budget:Such financial framework contains information about monetary income
and expenses which are related to the specified time period.
 Budgeted income statement: In this statement, finance personnel include budgetedprofit
that each department has to earnover expenses. Under income statement, manager
includes information about both direct and indirect expenses which firm will incur.
 Budgeted balance sheet: Budgeted statement of financial position renders information
about assets and liabilities.
Hence, by combining or co-ordinating such budgeting frameworksconcerned authority can
prepare suitable master budget or framework.
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Process for the preparation of master budget
 Budget committee: In the first step of budget preparation,business entity forms budget
committee by including key people.Such committee includespersonnelor manager from
finance and other department.
 Review:Once, budget committee has been formed thereafter key personnel involve in
such team makes assessment of goals and objectives. Moreover, without such evaluation
they would not become able to assess the activities need to be performed during a year
and associated amount. By considering such aspect manager lays high level of focus on
making evaluation of long term plan or goals.
 Identification:At the third step of budget preparation, manager assesses principal budget
factorand thereby prepares financial plan.
 Preparation of different budgets:In this, finance personnel prepares several budgets by
taking into account the following sequence such as:
 Formulation of financial sales plan
 Preparation of finished stock and production budget
 Framing budget of resources for production purpose
 Development of material usage budget by taking into account financial
framework related to production aspect
 Drafting labour budget forthe individuals of all grades
 Next to labour budget, manager prepares financial framework regarding overhead.
 Thereafter, raw material stock and purchase budget is prepared by the manager of
firm. In addition to this, at the end finance personnel drafts cash budget which
contains information about income and expenses.
 Co-ordination and review:Once all the sub-budgets have been prepared thereafter
manager coordinates all the financial frameworks.At this, manager identifies need in
relation to doing modifications for ensuring that others budgets are compatible with
others.
 Preparation:In the last stage of budget preparation, manager prepares master budget
which in reflects summary of all financial plan. Hence, after the preparation of budget
manager submits the same to Board of Directors for getting approval.
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Hence, by including all such steps manager of business unit can develop highly competent
monetary plan and thereby facilitates optimum use of financial resources.
In the business unit, manager’s role is significant in the development of highly suitable
and effectual budget. Moreover, under business organization managers are provided with the
responsibility to set appropriate financial plan by keeping \in mind each and every aspect.In
addition to this, managers of the firm have better insight about the activities which needto be
performed during a specified time frame. Further, senior management team has ability to assess
appropriate ways to performbusiness activities which in turn may result into low cost. In addition
to this,higher level managers have deeper insight about the extent to which specific department
failed to meet budgeted figures and aspects. Further, they also have knowledgeabout the cause of
deviations and ways for performance improvement. This aspect shows thatrole of senior
management in setting budget is highly significant which in turn helps in meeting organizational
goals and objectives.
Further, from investigation it has been assessed that,in the business unit, higher management
team has accountability to make proper estimation of expense level.Moreover,without having
appropriate estimation aboutthe level of income or expenses it is not possible for the firm to
prepare competent plan. Besides this, it is the responsibility of manager to allocate resources by
making evaluation of activities need to be performed during a year. In the business organization,
higher management team has accountability to set highly suitable and strategic plan that
contributes in the growth or success of an organization.
Besides this, they are also responsible for taking action which in turn may result into
performance improvement. Hence, individuals involved in higher management team are filled
withmore responsibilities. Due to all such aspects, it is not possible for the individuals of higher
management team to fully participate in budgeting process or aspect. Moreover, process of
creating master budget is highly time consuming for which manager has to devote more time. It
is one of the mainreasons due to whichhigher management team takes budgeting as a burden.
Thus, personnel of higher management team preferto take part only in combining, co-ordinating
and reviewing budgeting framework. However, such aspect closelyinfluences the overall
effectiveness of financial plan. Moreover, higher management team would not able to develop
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sound master budget frameworkin the absence of having appropriatesub-financial plans.
Thus,proper involvement of management personnel ishighly required for the development
ofeffectual plan.In the absence of having such aspect management team would not be in position
to circulatesuitable plan. This in turn also places negative impact on the utilizationof financial
resources to a great extent. Thus, it can be stated that involvement of higher management team in
setting budget is significantthat helps in getting the desired level of outcome or success.
CONCLUSION
From the above report, it has been concluded that budgeting tools are highly significant
which in turn helps in making control over expenses. Moreover, budget offers opportunity to
higher management to make continuous monitoring of expenses and thereby takes corrective
action for improvement. It can be revealed from the report that master budget summarizes all
budgets and thereby presents fair view of financial aspects. It can be seen in the report higher
management involvement in setting budgeting framework is highly required for the preparation
of competent financial plan.
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REFERENCES
Books and Journals
Cox, P., 2010. The Master Budget project: detailed analysis. Strategic Finance. 92(4). pp.62-64.
Cox, P., 2014. Access: master budget project: available cash. Strategic Finance. 96(3). pp.54-56.
Cox, P., 2014. Master budget project: cash budget macro. Strategic Finance. 96(4). p.54.
Cox, P., 2014. Master budget project: selling and admin outflows. Strategic Finance. 95(12).
p.62.
Shackleton, J., 2011. MPs warn budget cuts could delay marine master plan. Business Green. 28.
p.11.
Online
How to Prepare a Master Budget for a Business. 2017. Online. Available through: <
http://smallbusiness.chron.com/prepare-master-budget-business-10293.html>. [Accessed on
16th June 2016].
Master budget. 2017. Online. Available through: <
http://www.myaccountingcourse.com/accounting-dictionary/master-budget>. [Accessed on
16th June 2016].
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