Management Accounting: Budgeting Process and Performance Evaluation

MANAGEMENT ACCOUNTING 1
EXERCISE ONE
The process of budgeting is a critical process in a number of ways for an organisation.
A proper budget enables an organisation to keep track of how much it has earned and how
much it has spent (Talib & Ismail, 2017). The comprehensive process involves a series of
steps as elaborated below for the consideration of the managers.
STEP 1: The first step of the budgeting process is to update the underlying assumptions of
the budget. The underlying assumptions may be related to the cost trends, sales trends, or
business environmental conditions. It is vital to review this assumptions and amend the same
if necessary. For instance, the objective of the budget to be prepared is having to purchase or
replace expense equipment.
STEP 2: The next step in the process is to note down the available funding as the availability
of investable funds will form the base for the commencement of viable projects. For instance,
the available funds for the same with an entity is $ 50000.
STEP 3: The costing for the business can be influenced by the certain factors in the business
environment and the same should be closely considered. It is imperative to identify these
factors beforehand which would facilitate the budget to be realistic. For instance, the
technology, number of experts with the entity can influence the said budget.
STEP 4: The next step is related to the budget package. In this step, previous standards
related to the budgeting process are considered in order to frame a budget for the current
period. The updating of the previous standards is done taking into account the environmental
conditions to enable the preparation of the outline of the budget. For instance, the mode of
loan was considered to finance the said budget last year, the interest rates would be evaluated.
STEP 5: The next step involves the obtaining the forecasts of the revenues, obtain the
departmental budgets, augmentation of the compensation of the various hierarchy levels, and
the incorporation of the capital expenditure plans. All of these are incorporated in the
budgets. For instance, the cash flows arising out of the said purchases would be evaluated.
STEP 6: The next step involves the preparation of the budget, presenting the same to the top
management and according the approval of it. For instance, the senior management may have
a choice of entity and that can influence the said budget.
STEP 7: The final step involves issuing the budget and implementing it after the approval for
the same is obtained.

MANAGEMENT ACCOUNTING 2
EXERCISE TWO
(a)
The “three E’s” of performance are referred to as the Effectiveness, Efficiency and
Economy. Managers of an entity are required to assess the efficiency, economy and
effectiveness of the input resources to complete a work. It is vital for the senior
management to establish their priorities which will further facilitate the most
appropriate measures to be used in an entity, and would thus lead to the best
effectiveness, efficiency and economy mix (Walter & Meier, 2016). In context of the
laundries an their cost structure as stated above, it is essential for the management to
evaluate the cost, efficiency and other incidental factors of each input to decide which
laundry service option is most suitable.
(b)
REVIEW OF LAUNDRY SERVICES
STATEMENT OF COMPARISON OF OPERATING COSTS OF DIFFERENT LAUNDRIES
RATE/
CHARGE
LAUNDRY A
($)
LAUNDR
Y B($)
LAUNDR
Y C ($)
COST OF ELECTRICITY 31,040 31,280 54,150
COST OF DETERGENT 3,840 7,820 8,550
MAINTENANCE & REPAIR 2,560 3,060 3,990
REMUNERATION:
LAUNDRY MANAGER 12,000 12,000 12,000
SUPERVISOR 0 10,000 10,000
FULL TIME ASSISTANT (7000 PER
PERSON,
PER YEAR)
21000 28000 21000
PART TIME ASSISTANT (3500 PER
PERSON,
PER YEAR)
3,500 0 10,500
OVERHEADS ON WAGES AT 12% 4380 6000 6420
CENTRAL ADMIN COST: 5 CENTS
PER BAG
1600 1700 2850
DEPRECIATION
BUILDING 40 YEARS
STRAIGHT
LINE
3000 750 1875
EQUIPMENT 10 YEARS
STRAIGHT
LINE
1100 1300 1700
TOTAL COSTS 84,020 1,01,910 1,33,035

MANAGEMENT ACCOUNTING 3
COST PER LOAD (1 LOAD = 10
KG BAGS)
8402 10191 13303.5
COST PER BAG 2.63 3.00 2.33
ASSUMPTION:
1) THE SALARY OF SUPERVISORS
AND ASSISSTANTS IS ASSUMED TO
BE PER PERSON PER YEAR
2)THE SALARY OF PART TIME
STAFF IS ASSUMED TO BE HALF
THE RATE OF FULL TIME
ASSISSTANT
As per the assessment of the laundry services option as conducted above, following
points are noteworthy. In terms of the direct expenses namely the cost of electricity,
detergents and maintenance and repair, the laundry service A is most feasible. Further, it
must also be noted that remuneration of the personnel in the laundry service A is also the
lowest of each category of the workers except the part time assistants, because of the
employment of more part time assistants than the laundry service B. Nevertheless it is
significant to note that the depreciation charge is maximum in the Laundry service A that is
the $ 4100 annually, as compared to the Laundry service B and Laundry service C. The total
annual cost for the Laundry service A was computed to be the least to other in comparison,
and was worked out to be the $ 84020. However, it is significant to note, in terms of
efficiency and effectiveness, the operating costs of the Laundry service C was most efficient
and feasible, which amounted to approximately $ 2.33 per bag. Hence, Laundry C is most
efficient taking into consideration the units of bags washed.
EXERCISE THREE
(a)
CASH BUDGET
DEC JAN FEB MAR APR MAY
ADULT 1800 2000 2000 2500 2500 2500
Children 1500 2250 1800 2000 2250 2700
ADULT TOTAL FEES 18000 20000 20000 25000 25000 25000
Grands receivable 15000
TOTAL COLLECTION
1800
0
2000
0
2000
0
2500
0
2500
0
2500
0