Role of Budgeting in Management Accounting - Amazon Case Study

This report discusses the role of budgeting in management accounting and its importance in making valuable decisions. It focuses on a case study of Amazon and explores different budgeting styles, such as static budgeting, zero-based budgeting, and participative budgeting. The report also highlights the advantages and disadvantages of each budgeting style.

Management Accounting

Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
CONCLUSION................................................................................................................................6
REFERENCES................................................................................................................................8

INTRODUCTION
Management accounting is related to the decision made by internal manager by reviewing
internal report in order to increase the company overall performance within a year (Arroyo,
2012). It help in making day to day smart decision which enables company to effectively use
their available resources and funds that support to reach the desired target in appropriate time. In
this report, Amazon is selected which make use of different budgets to runs their various
operation.
The report defines, role of budgeting in helping the manager to make valuable decision in
dynamic competitive environment. In addition static and flexible style of budgeting with its
merits and demerits are also elaborated in this report.
MAIN BODY
Budgeting is the most significant component of accounting and plays a crucial role in a
firm's operations planning as well as guarantees that adequate operational and financial
transactions are performed out effectively to increase revenue within Amazon. As company is
planning to add a technology age within its operation, thus it is very much crucial to make very
smart move to use the resources and operate operation as per the defined budgets. In fact,
accounting provides an overview of all operations and duties undertaken in an organization and
recognizes gap loops to be filled in the potential in order to prevent any significant problems that
may harm the institution. The following assumptions illustrate how budgeting plays a major role
in strategy development of respective firm are discussed as follows:
Formulation of desired activities: To operate a company organization efficiently and retain
its balance, the broader image of all operations and duties conducted within its flagship must be
caught. The management of both of these obligations includes accurate and productive
interventions. Budgeting involves updating all of an operating performance on a unified
system and metrics how efficient and productive these objectives are achieved. Addressing the
security flaws current enables businessmen to be particularly careful throughout the future.
Drawing of the Goal Map: In context of Amazon, to accomplish its objectives, manager must be
planned mostly during beginning phase. Thus, budgeting plays a significant part in offering
fiscal posture to a company's business agenda, enrolling every one of the objectives to be met in
a specified amount of time (Chenhall and Moers, 2015). Effective budgeting allows

Amazon owners to take a goal map that offers all of targets and standards for attempting to
achieve the same. In the event of inadequate budgeting, may suffer significant losses.
Makes Decision-Making Credible: The opportunity expense for a business is need to be
higher which support to achieve the full income at minimal cost. Limiting the expense of
prosperity involves an eagle's eye of the responsible manager that can be understood by strategic
budgeting.
Static budgeting
A static budget is a form of budget that combines expected input and output values that are
formulated prior to the time in consideration. A continuous budget is also defined as a projection
of income and spending for a given timeframe and remains constant, even with rises or
reductions in levels of revenues and output. However, the figures from static estimates can be
very different from the real outcomes as opposed to the specific reports that are obtained after the
completion of different operation in Amazon. Static expenditures are utilized over years by
bookkeepers, accounting experts, and business management departments seeking to assess an
annual business results. Some of its advantage and disadvantages are discussed underneath:
Advantage
A big benefit of the static budget is really that it is easy to integrate and execute, and do
not require to be regularly revised during the fiscal times which are meant to represent. In
particular, it may also offer a clear overview into the expenses and income of Amazon while
carrying out a variability analysis. It helps to consider if its costs and profits might be
overestimated or exaggerated, which enables to make adjustments or adjust its plan in the future.
Thus, there is no built-in room for flexibility for static expenditures, they may help businesses
monitor their expenses and make wise investment decisions (DRURY, 2013).
Disadvantages
The main downside of the static budget would be its absence of versatility. Whenever
Amazon sets a budget focused on a predetermined amount of sales volume as well as the demand
rises, extra capital cannot be dedicated to maintain the sales. In case if company discovers
outperforming service sectors in these sections it cannot devote new capital to assist. In fact,
because static budgets are focused on previous results, it could be more challenging for Amazon
to develop new operation with ease. Static budgets are usually most helpful for firms with

completely predictable sales volumes and costs, while firms with higher year-to-year variability
cannot use static expenditure plan.
Zero based budgeting:
Zero-based budgeting differs significantly from traditional money management by
developing the expenditure plan for each new cycle beginning at a zero basis. Once applying it to
the current budget, manager of company have to explain increasing expense even existing and
recurrent expenditures. ZBB concept is the form of financial planning through which all
expenditure for the current period is determined depended upon the actual expenditure to be
spend and not according to the differential expenditure which includes necessarily adjusting the
amount spent in the light of changes in operating activity. Under this procedure each action
needs to be reasonable, explaining the actual reason for the revenue generated by spending every
single cost in Amazon. ZBB stresses the definition of a goal and therefore the funding of those
expenditures independently of the existing arrangement of expenditure.
Advantages: This budgeting means management care about how they invest every dime,
every budgeting time. The method therefore requires them to explain all operational costs and
understand which places produce income for the business. It simply means that each department
relooks each and almost every product in the working capital and calculates its operating costs.
This reduces costs to a certain limited extend as it displays the results of the expenses against the
actual goals. This also enhances departmental teamwork and collaboration and encourages
people by participating staff member in decision making process. By discarding all inefficient or
redundant operation it involves the identification of possibilities and much more cost-effective
manner of working the operation of Amazon.
Disadvantages: Zero-based budgeting is a very time-consuming process for a corporation to
perform versus incremental budget that is a much simpler approach. Making a whole budget
from ground up might necessitate a huge number of staff to be involved. Many divisions may not
have ample work and computational capital for the same. Zero-based budgeting is designed to
reflect the true expenditures an agency or state will incur (Kokubu and Kitada, 2015). This is a
much more acceptable method of budgeting, even if it takes time. At the end of each day, it was
a call from a corporation as if it prefer to spend resources and effort in the financial planning
workout to give the correct statistics and go for an adapted of budgeted amounts.

Explaining each line element and increasing expense is a challenging work that takes managers p
reparation.
Participative budgeting
This strategy helps to generate more realistic targets because lower-level workers are best
placed to tell their managers when they ought to distribute funds. If Amazon performs
participatory budgeting reveals the trust of the upper management of its employees. The sense of
superiority of the worker to gives the incentive to improve work and accomplish the objective
they have introduced of making technology age.
Advantages:
Managers also have the opportunities to talk the problems they face in preparing budgets and
brainstorming ways to solve problems. The top executives as well as the subordinates are often
willing to express their opinions on some topics of concern. It offers them a feeling of control as
senior management is taking their ideas into account. Management also appreciates them when
they have the opportunity to spend time with senior executives and express their experiences on
those places of interest (Hiebl, 2014).
Disadvantages:
The most important weakness of a participatory spending plan is that especially in
comparison to an enforced budget and is really time-consuming. Although the preparation of the
budget begins again from standard of the department to the top, there may be too much
involvement which may derail the process. The involvement of all staff across each team will
imply the discussions can take too long before a deal is concluded by the staff. If there is no
consensus, the board would have to make the ultimate call, which ensures an agreed judgment
would have to be approved by the employees.
In the context of given scenario, Amazon must implement the ZBB approach of making
effective budgets that enables to take valuable future decision impacting to increase the overall
growth. This helps them to start the new project of making technology age with the ground level
resulting into favourable results and higher productivity (Otley and Emmanuel, 2013).
CONCLUSION
In the end of report, it is founded that MA is useful in managing different information that
support to make valuable budgets for attaining gaols. A detailed analysis at certain undertakings
or activities carried in a business helps financial analysts to recognize current operations,

eventually enabling possible decision making in Amazon. Company must use ZBB as it reduces
costs to a certain limited extend as it displays the results of the expenses against the actual goals

REFERENCES
Books and Journals
Arroyo, P., 2012. Management accounting change and sustainability: an institutional approach.
Journal of Accounting & Organizational Change. 8(3). pp.286-309.
Chenhall, R. H. and Moers, F., 2015. The role of innovation in the evolution of management
accounting and its integration into management control. Accounting, organizations and
society. 47. pp.1-13.
DRURY, C. M., 2013. Management and cost accounting. Springer.
Hiebl, M. R., 2014. Upper echelons theory in management accounting and control
research. Journal of Management Control. 24(3). pp.223-240.
Kokubu, K. and Kitada, H., 2015. Material flow cost accounting and existing management
perspectives. Journal of Cleaner Production. 108. pp.1279-1288.
Kotas, R., 2014. Management accounting for hotels and restaurants. Routledge.
Otley, D. and Emmanuel, K. M. C., 2013. Readings in accounting for management control.
Springer.