Management Accounting

This document discusses the traditional budgeting process and the concept of beyond budgeting in management accounting. It explores the advantages and disadvantages of traditional budgeting and introduces the principles of beyond budgeting. The document also explains the relationship between direct material and direct labor variances.

Running Head: MANAGEMENT ACCOUNTING 1
MANAGEMENT ACCOUNTING

MANAGEMENT ACCOUNTING 2
Question 1
Budgets were born in the year 1920, and the same have been utilized for control of the
cash and the other cash flow operations. Earlier the budgets were prepared through the traditional
and the conventional way of budgeting. A traditional budget is considered as one of the
quantitative expression of a proposed plan for what needs to be done and why it needs to be done
at the same time. The process of budgeting was designed mainly to set the strategic goals,
objectives and development of the forecasts. The traditional budgeting process was made up of
combination of thee technical as well as the behavioral aspects of budgeting. These two
categories are mandatory for the purpose of achieving goals and objectives. The technical
component of the budgets deals with the mathematical and the calculative part whereas the
behavioral component deals with the ability to achieve the technical aspects of budgeting. These
two approaches are interlinked to each other. Budgets were helping the management in assisting
the performance management of the company (Bogsnes, 2016). After analyzing the case study it
was found that the traditional budgeting is time consuming and they are rarely strategically
focused and often contradictory. The value addition was little and hence the traditional budgeting
was losing their importance day by day. The other alternatives of the budgeting were required to
fill the gaps that have been created over the years as it has claimed that the traditional budgeting
has lost the identity with the growth of the business environment and it fails to satisfy the needs
of the managers.
For the purpose of the better techniques and the abilities, beyond budgeting has been
proposed to Jeremy Hope and Robin Fraser. The purpose of the beyond budgeting is to create
more agile and human organizations. Beyond Budgeting is a set of the guidelines and the
principles have followed to manage the performance and decentralize its decision making
process without the need of the traditional budgeting anymore (Lorain, García Domonte & Sastre
Peláez, 2015). The biggest advantage of the beyond budgeting as it is the more adaptive way of
managing and the goals have been stretched and linked to the performance against the world
class benchmarks. This leads to increase in the motivation, higher productivity and the better
customer productivity. With the help of the beyond budgeting is to decentralize the whole
organization and increases the independence of the managers. Also in case of beyond budgeting

MANAGEMENT ACCOUNTING 3
the rewards are linked on the basis of the relative performance. Hence the beyond budgeting
have been implemented in the organizations in order to have better results (Schmitz, 2018).
Question 2
C)
One reason for direct material and Direct Labor variances as computed in part B, is that
each of them builds a relationship and develops a positive correlation. Direct labor cannot work
according to the non-availability of direct materials. A favorable direct material variance reflects
the low buying quality whereas the direct labor efficiency variance depicts the number of the
hours spent in the rework for the output that did not pass the quality control check (Eisenberg,
2016).

MANAGEMENT ACCOUNTING 4
References
Bogsnes, B. (2016). Implementing beyond budgeting: Unlocking the performance potential. John
Wiley & Sons.
Lorain, M. A., García Domonte, A., & Sastre Peláez, F. (2015). Traditional budgeting during
financial crisis.
Eisenberg, P. (2016). Implications of Standard Costing System in Manufacturing: A Case
Study. Journal of Applied Management and Investments, 5(3), 162-165.
Schmitz, S. O. (2018, July). Beyond Budgeting-a fair alternative for management control?
Examining the relationships between Beyond Budgeting, organizational justice and
unethical behaviors. In Proceedings of International Academic Conferences (No.
8209683). International Institute of Social and Economic Sciences.