Management Accounting: Budgeting and Decision Making

This report provides an overview of management accounting and its role in decision making. It discusses the different types of budgeting, including zero base budgeting, rolling budget, and activity based budgeting. The report also explores how budgeting helps managers in decision making and the pros and cons of participative budgeting. Additionally, it highlights the importance of budgeting in a changing environment and provides insights into the budgeting process of Softconic IT company.

Management Accounting

Contents
INTRODUCTION.....................................................................................................................................4
MAIN BODY.............................................................................................................................................4
Budgeting................................................................................................................................................4
Types of budgeting..................................................................................................................................4
How does it help managers in decision making?.....................................................................................5
Suitable for changing environment..........................................................................................................5
Critical analysis entails considering both pros and cons of an argument.................................................6
Participative budgeting............................................................................................................................7
Support decision making in changing environments...............................................................................7
Pros and cons of participative budgeting.................................................................................................7
CONCLUSION..........................................................................................................................................8
REFERENCES..........................................................................................................................................9

INTRODUCTION
Management Accounting is the basis for director accounting where the administrators get
the requisite information to execute their duties. Decision making is key types of leadership
styles of every company or organization. Management accounting offers knowledge that enables
executives monitor the business growth and determines those goods to sell, where else to
advertise, how to procure those goods, and which administrators to accept the organization's
profits (Barbera, Sicilia and Steccolini, 2016). This report based on the Softconic IT company
which is producing Word Processing software for computers with the variety of collaborative
applications. In this report consist of various topics such as budgeting and their types,
participative budgeting with pros and cons, flexible and static budgeting and many others.
MAIN BODY
Budgeting
A budget is an instrument employed by planners in preparing and monitoring usage of
scarce capital. A budget is a strategy that demonstrates the priorities of the organization, and how
starts of the planning to obtain and use funds to accomplish those targets. Budgeting is a method
whereby they build and intend to invest capital. That expenditure strategy is considered a budget.
Developing this budget proposal gives the ability to evaluate ahead of time whether they will get
enough resources to meet ever want to perform. The financial planning process includes
preparing for potential productivity, as obtaining a fair return on used capital is a main goal of
the business.
Types of budgeting
There are different types of budget used by the different organisation as per the
requirements that are mentioned below such as:
Zero base budgeting: This process of analysis has the idea that the budget should be established
from scratch for each cost centre. Any element worthy of investment should be absolutely
justified. This implies that the operation of this year does not proceed likewise for this year.

Hence each element of spending must be explained before it is shown in the spending until next
year (Phaup, 2019).
Rolling budget: These are budgets, which are constantly revised by introducing another time
(one week, one half) and recouping the earlier time. The expenditure will be planned from last
year but the perfectly ready budget will be just the one quarter whereas the other periods or
divisions will be implemented in a condensed manner (Hayward and et.al, 2017).
Activity based budgeting: Activity Based Budgeting describes tasks that are performed within
an entity. These will then set the overhead costs and plan the expenditure based on activities and
the factors of costs.
How does it help managers in decision making?
By budgeting, an organization makes choices here about how to step ahead. Budgeting
may be performed by people or groups, based on the organization’s scope and personality. A
budget is the cornerstone of every successful business strategy by estimating the revenues,
setting priorities and assigning resources to various outlets. Organizations utilize expenditures to
measure organizational effectiveness and task and assignment. Every organisation prepare
budget for future planning and according they set future strategy in order to get success and
growth. On the basis of budget the organisation predict future income and expenditure so
accordingly take decision for the better investment.
Suitable for changing environment
Flexible Budget: A flexible budget is a schedule or finance plan which varies based on
the availability of the firm. A flexible budget could apply to an entire organization or a
department. Budget creator made it intentionally efficient. They rendered it versatile, since the
needs of the individual organization or department are not fixed. A flexible budget adapts to
shifts in the amount of real revenues. Flexing a budget happens whenever the initial budget is
purposefully revised to take into consideration changes in the output rates. The balanced strategy
is related to the basic differences between fixed cost behavior, contribution margin and semi
contribution margin (Kahar Rohman and Chariri, 2016).
Static Budget: A static budget is a form of budget which foresees a fixed revenues,
income, or expenditure number. Fixed budgets may remain constant, or set, in the financial

statements of an organization irrespective of overall sales variations. Having a static budget will
allow corporations to contribute funds to services which they anticipate to stay the same over the
period specified. For example , a company that set a static budget for expenditures such as rent
or service costs, as such expenditures are usually the same in the time to time.
For Example, Amazon is a multinational American company that based on the technology. It is
focusing on the e-commerce, digital streaming, artificial intelligence and many others. In present
time company face the problem of pandemic situation and current lockdown so they were forced
to channel more financial resources and deliver things to people on time with safety because of
enhance demand. At this time require to company apply the effective budgeting system in order
to manage all the activities efficiently. This requires applying flexible budget because due to
pandemic situation company does not follow the static budget. As per the situation require to
apply the related changes in regard of the business activities. In flexible budget easily apply all
the changes as per necessity. The Corona virus impact on every business activities so company
must maintain flexible budget in which apply the changes any time and add expenditure and
income according to station. The flexible budget helps to predict future condition and
profitability that generate by business in particular field.
Critical analysis entails considering both pros and cons of an argument
Flexible budget
Pros: Flexible budget beneficial for a company to estimate the level of success and revenue at a
relevant interval of revenues and activity rates. The effect of shifts in revenues and rates of
output on revenue, expenditures and profits could be seen (Montambeault, 2016).
Cons: However, a significant decrease in the flexible budget is that it can never be formed unless
certain sales numbers have been produced initially. This implies that, initially, a flexible budget
is focused on the power output of the static budget of a fourth month.
Static budget
Pros: A big benefit of the static budget is that this is likely easy to integrate and execute, because
static budgets don't have to be regularly revised. In fact, a static budget can provide a deep
insight into the income and expenditure of an organization while carrying out a variability study.

Cons: The greatest downside to the static budget is its absence of versatility. When a business
places a budget is based on just that levels of output or that increases slightly, extra support
cannot be allocated to stay current. When an organization discovers underachieving target
markets along those same dimensions it cannot devote extra funding to sustain
Participative budgeting
Participatory budgeting is the circumstance wherein the budget is planned and established
just after feedback of line staff, rather than simply enforced. Involvement in budgeting process is
intended to divide accountability for subordinating management and to create a type of self
control on the final budget. They have their own details that perhaps the superiors use to devise
the self-imposed plan or participatory plan, the financial planning method through which
delegate engages through budgeting process. It is a part of the budgeting system that is use by the
business to collect feedback about the staff members (Nikitina et.al, 2018).
Support decision making in changing environments
The external world consists of a number of variables each of which has the potential to
affect overall efficiency. As well as business budgeting models are also influenced by shifts in
environmental influences. As in Softonic business above, if they planned a sales plan for the
current span of time that produces good results. Due to changing environments apply the
participating budgeting that helps to modify technology as per the requirements. A participatory
budgeting mechanism can be more successful when the firm implement a checks and balances
system to avoid the misuse of control by undisciplined managers. When the budget passes from
the lower managers to the center and then the upper management, the market value can be
checked at each managerial level, with the senior managers reaching the required say.
Pros and cons of participative budgeting
Pros: Participatory budgeting has the benefit of transmitting data from either the inferior
to its supervisor This experience is likely to be more precise because the inferior has personal
communication with the operation and is therefore in the position of making assessments of the
expenditure. Improved efficiency and job performance cannot happen if the individual does a
high motivation levels. The conversely is true too! Centrally controlled decision-making implies
all of us have a voice because everyone has a vote (Oyewo, 2016).

Cons: The downside of delegate / outstanding communication of data is, of example,
that the evidence released by the secondary may not have been perfectly true; expenditure figures
may be overestimated to promote the achievement of the follower's job. The distinction between
some of the Participative leadership aims for greater engagement and the cycle certainly comes
to a halt as there are more groups affected in decision taking. Components and suggestions from
each side begin to stream. This requires chance to examine the precision of calculations, that
ensures that the projected expenditure and the oversimplified expenditure will be stopped
completely in decision-making.
CONCLUSION
As per the above report it is concluded that Budgeting is an important method for
businesses to distribute financial resources more effectively. The study expresses various kinds
of financial planning types, such as static, set, that are analyzed objectively in a thorough way.
The other section of the report addresses the relation of budgeting in order to take strategic
decisions that is feasible based on the evidence given by various forms of budgets. It can be
learned from the end part of the study that participatory budgeting is a positive method for both
businesses and workers.

REFERENCES
Books and Journal
Barbera, C., Sicilia, M. and Steccolini, I., 2016. What Mr. Rossi wants in participatory
budgeting: two R’s (responsiveness and representation) and two I’s (inclusiveness and
interaction). International Journal of Public Administration. 39(13). pp.1088-1100.
Hayward, M. and et.al, 2017. Entrepreneurs’ capital budgeting orientations and innovation
outputs: Evidence from Australian biotechnology firms. Long Range Planning. 50(2).
pp.121-133.
Kahar, S. H., Rohman, A. and Chariri, A., 2016. Participative budgeting, budgetary slack and job
satisfaction in the public sector. Journal of Applied Business Research (JABR). 32(6).
pp.1663-1674.
Montambeault, F., 2016. Participatory citizenship in the making? The multiple citizenship
trajectories of participatory budgeting participants in Brazil. Journal of Civil
Society. 12(3). pp.282-298.
Nikitina, O. A., Litovskaya, Y. V. and Ponomareva, O. S., 2018. Development of the cost
management mechanism for metal products manufacturing based on budgeting
method. Academy of Strategic Management Journal. 17(5). pp.1-17.
Oyewo, B. M., 2016. Does a Tutor's Industry Experience Makes the Teaching of Management
Accounting More Effective? Some Evidence from Nigeria. Journal of Accounting,
Finance & Management Strategy. 11(2). pp.17-50.
Bernaciak, A., Rzeńca, A. and Sobol, A., 2017. Participatory budgeting as a tool of
environmental improvements in Polish cities. Economic and Environmental
Studies. 17(44). pp.893-906.
Phaup, M., 2019. Budgeting for Mandatory Spending: Prologue to Reform. Public Budgeting &
Finance. 39(1). pp.24-44.
Ji, R. and Lejeune, M. A., 2018. Risk-budgeting multi-portfolio optimization with portfolio and
marginal risk constraints. Annals of Operations Research. 262(2). pp.547-578.