Curtin University Management Accounting 2: Budgeting System Report

This report focuses on the development of a budgeting system within the context of management accounting. It begins by highlighting the increasing dynamism and sensitivity of contemporary markets, emphasizing the importance of accurate sales forecasting and budgeting. The report discusses the limitations of traditional budgeting methods, particularly in uncertain environments, and advocates for a more flexible and participatory approach. It emphasizes the benefits of budgetary participation, especially a bottom-up approach involving lower-level employees. The report then presents a simple budget for Boogie Ltd, illustrating how a budget can be developed by considering sales growth uncertainty and the importance of taking low risks. The report underscores that even if the forecasted sales level is not achieved, the organization would not be liable for much. Finally, the report includes a bibliography of relevant sources.

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MANAGEMENT ACCOUNTING

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Table of Contents
Development of budgeting system..................................................................................................3
Simple budget for Boogie Ltd.........................................................................................................4
Reference List..................................................................................................................................5

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Development of budgeting system
The contemporary markets are increasingly dynamic and sensitive, and even the minimal
unexpected events in the performance of a company are reacted upon by analysts and experts.
The markets' efficiency for sharing, disseminating and analyzing information is seen in the
growing volatility which seems to impact the companies even in the stable and firm industries
and markets. Forecasting sales and budgeting for the same is an area where even the most basic
of improvements could yield deep knowledge and insights about the performance of a company,
it's situations as well as outlooks1.
These days markets have become increasingly rapid and sophisticated when it comes to data
processing. The mechanism to which cause the creation of the expectations have not developed.
Most of the companies that are stock listed still choose to use the quiet arcane forecasting and
budgeting procedures. On the basis of the prospect lists, the rough estimates about sales and
guesses and probabilities made, are highly dependent upon the accuracy of numbers which in
turn a dependent upon the person who does the work. However the people responsible for sales
are different from that of the ones who do forecasting. The personal motivations of these people
are different from the latter ones which influences their reporting.
In large companies and organisations, budgets are considered to be key control devices that are
dependent upon the performance evaluation and target setting of every individual based on
measures of accounting performance2. The limits of budgeting have been emphasized upon by
the accounting literature of environmental uncertainty. In an environment which is dynamic and
unpredictable, there are at least two difficulties which is faced by budgeting. These are, setting
1 Tiina Henttu-Aho and Janne Järvinen. "A field study of the emerging practice of beyond
budgeting in industrial companies: an institutional perspective." European Accounting
Review 22, no. 4 (2013): 765-785.
2 Pamela Danese and Matteo Kalchschmidt. "The role of the forecasting process in improving
forecast accuracy and operational performance." International Journal of Production
Economics 131, no. 1 (2011): 204-214.

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objectives that a realistic in a context switch is not predictable enough; and achieving and
evaluation of fair performance when outcomes and their controllability have been affected by
uncertainty. Subsequently, the usage of budgeting as a control device that increases the
management pressure, should be Limited in situations of perceived environmental uncertainty.
Besides this, an organization’s flexibility needs are increased due to uncertainty, since we should
be able to adapt to the changes.
In budget participation, the subordinates as well as the superiors are involved3. A bottom-up
approach is considered to be participating because it involves the employees of lower level. The
budget process might be initiated by the top management which would provide general and basic
guidelines, however it is ultimately the employees of the lower level who undertake the
development of the budget for their own units. The employees usually consist of the
representative from every individually segment or unit who have the ability of providing
valuable insights and knowledge on the operations on activities of their segments. On the basis of
their input, the final resource allocation takes place and hence it is crucial to involve the lower
level employees or staff throughout the whole process of budget setting. Several benefits our
yielded by the means of budgetary participation such as commitment towards the budget,
increase level of employee motivation, increase in the sense of responsibility, creativity
enhancement among all level of employees, etc.
For a growing an established business like Boogie Limited, a budget can be developed by
considering the uncertainty regarding the growth in sales as well as participation in the budgetary
process. This would be done by allowing the junior employees to provide their own units and
inputs and figures which is relevant to them. When there is uncertainty regarding the growth of
sales, the expectation of returns such as revenue, gross profit or net profit should be lesser and
3 Roopa Venkatesh and Jennifer Blaskovich. "The mediating effect of psychological capital on
the budget participation-job performance relationship." Journal of Management Accounting
Research 24, no. 1 (2012): 159-175.

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low level of risks should be taken4. As such, even if the forecasted level of sales is not achieved,
and losses are incurred, the organization would not be liable for much.
Simple budget for Boogie Ltd
Particulars Budgeted ($ millions) Actual ($ millions)
Total sales 100 90
Total expenditure 60 65
Interests and taxes 20 22
Net profit 20 3
4 James M. Kohlmeyer III, Sakthi Mahenthiran, Robert J. Parker, and Terry Sincich.
"Leadership, Budget Participation, Budgetary Fairness, and Organizational Commitment."
In Advances in Accounting Behavioral Research, pp. 95-118. Emerald Group Publishing
Limited, 2014.

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Bibliography
Danese, Pamela, and Matteo Kalchschmidt. "The role of the forecasting process in improving
forecast accuracy and operational performance." International Journal of Production
Economics 131, no. 1 (2011): 204-214.
Henttu-Aho, Tiina, and Janne Järvinen. "A field study of the emerging practice of beyond
budgeting in industrial companies: an institutional perspective." European Accounting
Review 22, no. 4 (2013): 765-785.
Kohlmeyer III, James M., Sakthi Mahenthiran, Robert J. Parker, and Terry Sincich. "Leadership,
Budget Participation, Budgetary Fairness, and Organizational Commitment." In Advances in
Accounting Behavioral Research, pp. 95-118. Emerald Group Publishing Limited, 2014.
Venkatesh, Roopa, and Jennifer Blaskovich. "The mediating effect of psychological capital on
the budget participation-job performance relationship." Journal of Management Accounting
Research 24, no. 1 (2012): 159-175.