Relevance of Traditional Budgeting and Standard Costing in Contemporary Business Accounting

Running time: COSTING AND BUDGETING ESSAY
COSTING AND BUDGETING ESSAY
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1COSTING AND BUDGETING ESSAY
Introduction
The business environment has changed to a great extent and with respect to this, it
becomes considerably crucial for any enterprise to ensure that they are successfully able to meet
with the needs of the business and do so in a manner such that they are not faced by any
problems in the long run (Asogwa & Etim , 2017). Moreover, as the business environment has
become considerably dynamic in nature, it can be considered to be very important for the
management, to keep a check on the different operations which take place and undertake
operations which will help them in ensuring that, the business operations are taking place in the
right manner. In the traditional area, the concept of costing and budgeting were greatly used in
order to determine whether the business operations are going as per the trends predicted and the
operations forecasted. However, when considered an essential aspect of any business over time,
these tools and devices have ultimately lost their importance and have become very obsolete in
nature. In respect of this, the corporate budgeting has lost its importance and so as standard
costing. According to Kelly, Janet & William (2014), corporate budgeting can be now
considered to be a waste of the organizational resources as well as the time and many companies
who tend to engage in the procedure often tend to lose out on additional costs of the firm.
Moreover, even in the field of accounting, the standard costing and the variance analysis have
been considered to be irrelevant in nature and are unable to fulfil their purpose of fulfilling the
requisites of the firm. Hence, in line of this, the primary aim of the essay is to outline the overall
relevance of Traditional Budgeting and standard costing in the contemporary business
accounting.
Discussion

2COSTING AND BUDGETING ESSAY
Traditional Budgeting
The primary objective of preparing a budget can be stated to be the achievement of the
overall corporate objectives of the firm. The budget tends to act as a key survival of any business
from the point of development of a budget till the overall implementation of a budget. The
system of accounting tends to have a heavy reliance on the overall costs of the firm and tends to
focus on the area of performance as well as the target evaluation (Jensen, 2001). The different
decision makers as well as the management of the firm relies on the overall budget in order to
determine whether they have been able to prioritize the different activities or not and in addition
to this, the manner in which the different employees have been able to make use of the resources
adequately or not. The budget not only provides an estimation of the future progress in the field
of organizational performance but also goes a long way in keeping a track of the organizational
performance as well as effective planning along with control mechanisms.
The different responsibilities of the different departments in a firm can be stated to be
greatly determined by the budgetary allocation to the specific department (Sandalgaard &
Nikolaj Bukh, 2014). Moreover, the budget in an organization can also be believed to have
communicative role whereby it tends to communicate the targets as well as the performance of
the management and tends to predispose any favourable performance which may take place in
the field of business. A budget goes a long way in setting the targets of the firm and can be stated
to be instrumental to the overall purpose of the performance evaluation as well as formation and
implementation of the different strategies of the firm (Lorain, García Domonte & Sastre Peláez,
2015). Along with this, the budget ensures that it acts as a key instrument towards evaluation of
performance, formation as well as the implementation of the strategies and also engaging in the
control mechanism with it.

3COSTING AND BUDGETING ESSAY
Traditional budgeting in the modern business environment
According to Jensen (2001), the traditional budgeting is considered to be highly obsolete
in nature and the argument against the traditional budget was also strengthened by stating that
budgeting often leads to a dysfunctional behaviour amongst the staff as it has a variety of
disadvantages which then leads to the development of waste, consumes the time of the
management, affects the overall flexibility which takes place in the firm and in addition to this,
goes against the adaptability aspect of the firm in the long run. Man authors and critics have also
mentioned that, the budget not only ends up in consuming additional time of the organization but
also does not leave any scope for the firm in order to adapt in the competitive business
environment (Wildavsky, 2017). These are considered to be some of the major reasons why the
function of budgeting is considered to be obsolete and disinteresting. According to Lorain,
García Domonte & Sastre Peláez (2015), the budgeting which tended to take over traditionally
can be described as broken as well as gratuitous evil because it fails to adapt to the dimensions of
the organization currently and tends to have a negative impact on the overall operations of the
firm. Instead of acting as a measure to reach out to the different people and helping them to
understand their different targets, the traditional budget in the present business scenario, deviates
the organization from reaching out its overall targets and in line of this, it can also be understood
that, it tends to waste their time, provide them with unrealistic targets and tends to spoil the
overall motivational level of the different employees in the firm as well.
Alternatives to the Traditional Budgeting