BA Business Management LCBB5002 Management Accounting Essay: Budgeting

This essay delves into the realm of management accounting, specifically examining its role in enhancing the efficiency and effectiveness of businesses. The core focus is on budgeting techniques, with detailed discussions on various methods such as incremental, activity-based, value proposition, and zero-based budgeting. The essay analyzes the advantages and disadvantages of flexible and static budgeting, emphasizing the suitability of flexible budgeting for companies like Softconic, especially in dynamic environments. Furthermore, it explores participative budgeting, highlighting its benefits and drawbacks, and its impact on decision-making in a changing business environment. The essay concludes by underscoring the importance of budgeting in forecasting requirements and making informed financial arrangements to achieve sustainable success.

Management
Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
PART A...........................................................................................................................................1
PART B............................................................................................................................................3
CONCLUSION................................................................................................................................5
REFERENCES................................................................................................................................6

INTRODUCTION
Management Accounting refers to the use of different types of provisions so as to analyse
and interpret the financial information effectively and efficiently (Fleischman and McLean,
2020). This essay is based on Softconic. It is an IT Company. In this essay detailed discussion
will be made on how it can improve its efficiency and effectiveness by using the provisions of
Management Accounting.
MAIN BODY
PART A
Budgeting refers to the use of different types of budgets so as to make sure that the
organization is able to plan in the correct manner regarding its financial resources. A budget
refers to an estimation of revenues and expenses which is made for a particular period of time
mostly a year (Budget, 2020). This process is quite useful from the point of view of the managers
so that they are able to take the correct decisions which will help the company to attain higher
level of profits. For Softconic it is quite essential that it uses its appropriate techniques for the
purpose of using its financial information in the correct manner.
There are different methods which are used for budgeting. These are as follows-
Incremental Budgeting- In this type of budgeting, the focus is put by the organizations on
preparing budgets by adding to the already existing values (Horton and de Araujo Wanderley,
2018). Thus Softconic can use it so that it is able to prepare a budget effectively.
Activity-based budgeting- In it, the organizations make their focus on the different types of
activities which are required for the purpose of conversion of the inputs into outputs. In the
context of Softconic it has to be made sure that it is able to use the right system so that it can
convert the inputs into outputs to achieve efficiency.
Value proposition budgeting- This type of budgeting makes sure that everything which
provides value to the businesses is included in the budget. For Softconic it offers an opportunity
to make sure that the right methods are used so that the organization is able to achieve its goals
and objectives.
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Zero-based budgeting- In it, the companies need to make use of fresh data as it does not
considers the old information and starts from the scratch. In the context of Softconic it is needed
that it can use this method correctly.
Budgets can help the managers a lot in taking the correct decisions because they can
forecast their various requirements for the future time period and arrange funds accordingly.
They can not only forecast the revenues but can also check the various expenses. In Softconic, it
is required that the management makes the appropriate use of the budgets so that it is able to
achieve the desired outcomes without problems and issues.
Flexible Budgeting-
A Flexible Budget is the one which changes a lot with a change in the overall volume or
activity (Jack, 2017). As a company progresses further and increases its activities it can make use
of this type of budget so that it is able to assess its needs and requirements according to the level
of activity. For Softconic, it is quite useful as it will make sure that it is able to use it to assess the
impact which COVID-19 is going to have on its business activities and how they can be changed
to suit the needs and requirements of changing times.
Advantages-
With the use of Flexible Budgeting the companies can more accurately analyse and interpret the
changes in their system. By using Flexible Budgeting the firms can make sure that they are able
to reflect the changes in their activity level on their budgets easily.
Disadvantages-
In Flexible Budgeting the figures can change every time there is a change in the activity level
which leads to lack of consistency. In Flexible Budgeting there is a comparatively less discipline
and this can create problems and issues.
Static Budgeting-
Static Budgeting is a method in which the managers make forecasts of revenues and
expenses for a particular period of time which remain unchanged even with a change in the
activity level (Laela and et.al., 2018). In the context of Softconic this type of budgeting can be
used if there is no major change in the activity level of the firm.
Advantages-
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Using Static Budgeting method allows the organizations to make the required comparisons
because stable figures are used here. By Using Static Budgeting method the companies can make
sure that they can easily control their various costs easily without problems and issues.
Disadvantages-
There is a lack of flexibility in the preparation of Static Budget. This is a disadvantage for the
firms. The company cannot allocate the resources for the improvement of its performance if it
makes use of Static Budgeting Method.
Justification- In the current scenario of COVID-19 pandemic, it is advisable for
Softconic to choose the Flexible Budgeting Method. It is so because in these dynamic
circumstances the activity level of the companies can fluctuate a lot. Thus for the companies in
these situations it is advisable that they use this method so that they can make adjustments
accordingly.
Leading IT Companies in the world like Google, Microsoft etc. are making use of
Flexible Budgeting System so that they are able to make sure that they can adjust the activity
levels according to the changing needs and requirements of a dynamic business environment. In
this scenario of the pandemic these organizations are doing the right thing by using this method
for preparing their budget.
PART B
There are different types of budgeting systems which are available for a particular
company to use. These are Incremental Budgeting, Activity-Based Budgeting, Value Proposition
Budgeting and Zero-Based Budgeting.
Participative Budgeting-
Participative Budgeting refers to a process in which the budget is prepared with the help
of inputs given by the employees who are working in the lower-level management of a particular
organization (Pavlatos and Kostakis, 2018). Using this method, the companies like Softconic can
make sure that they prepare the right budget for the future time period.
Advantages- Using the Participative Budgeting method, the companies can transfer the
information upwards easily which helps in taking of better decisions in the future time period.
Also, by using the firms are able to increase the motivation level of their employees easily so that
they can provide their inputs which can be quite useful for an organization. Also by using it in
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the correct manner the company can achieve goal congruence which means that there is an
agreement between the personal goals of employees and the goals of the companies. The firms
will get in a position to take the desired actions without problems and issues using this method as
the opinion and viewpoints of so many people are taken by the managers.
Disadvantages- The preparation of a budget under this method is a very time-consuming
process because the opinions and viewpoints of workers working in the lower-level management
has to be taken. Therefore this can lead towards a delay in the decision-making process. Using
this method can also lead towards the manipulation of the figures in budgets by the employees
towards their advantage. Some of the decisions taken by the employees may also prove to be
wrong which can hurt the prospects of the company. Also it is an expensive process as compared
to other budgeting methods and therefore can lead towards increase in the overall costs.
Justification- In the changing global business environment after the impact of the
COVID-19 pandemic, it is advisable for Softconic to make sure that it uses Participative
Budgeting Method. It is so because using it will allow the company to prepare its specific
budgets according to the opinions of the employees of the lower-level management which can
lead towards the preparation of a better budget for the future time period.
Impact on decision-making in changing environment-
Business Environment is fickle and dynamic in nature (Thomas, 2016). It is ever-
changing and thus can change anytime which means that the organizations are required to make
the required adjustments according to it so as to sustain themselves in the market. When a
company like Softconic makes use of the Participative Budgeting Method this makes sure that
there is an impact which is created on its decision-making.
There are many people in the organization who are quite skilful in their respective fields.
Softconic can make use of their skills, efficiency as well as effectiveness to make sure that the
correct budgets are prepared which accurately forecast the needs and requirements of the
companies in the future time period. For Softconic, it is needed that it makes use of them and
their inputs so that the right decisions can be taken in a changing environment to attain a
strategic edge over the various competitors.
CONCLUSION
From the above report, it can be concluded that the organizations should make use of the
budgeting process to forecast their requirements and make arrangements of funds accordingly.
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This can help the managers a lot in taking appropriate decisions for the future time period so as
to achieve sustainable success.
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REFERENCES
Books and Journals:
Fleischman, R. and McLean, T., 2020. Management accounting: theory and practice. Routledge.
Horton, K. E. and de Araujo Wanderley, C., 2018. Identity conflict and the paradox of embedded
agency in the management accounting profession: Adding a new piece to the theoretical
jigsaw. Management Accounting Research. 38. pp.39-50.
Jack, L., 2017. Strong structuration theory and management accounting research. Advances in
Scientific and Applied Accounting. 10(2). pp.211-223.
Laela, S. F. and et.al., 2018. Management accounting-strategy coalignment in Islamic banking.
International Journal of Islamic and Middle Eastern Finance and Management.
Pavlatos, O. and Kostakis, H., 2018. Management accounting innovations in a time of economic
crisis. The Journal of Economic Asymmetries. 18. p.e00106.
Thomas, T. F., 2016. Motivating revisions of management accounting systems: An examination
of organizational goals and accounting feedback. Accounting, Organizations and
Society. 53. pp.1-16.
Online
Budget. 2020. [Online]. Available through: <https://www.investopedia.com/terms/b/budget.asp>
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