Management Accounting Report: Budgeting Techniques and Analysis

This report provides an in-depth analysis of management accounting, focusing on budgeting techniques and their application within organizations. It begins with an introduction to management accounting and the budgeting process, emphasizing its role in internal management, planning, and control. The report then delves into various budgeting methods, including fixed, flexible, and participative budgets, examining their characteristics, advantages, and disadvantages. The analysis includes real-world examples and considers the specific context of a company like Phillips, highlighting how different budgeting approaches can be utilized to improve efficiency, accountability, and decision-making. The report also discusses the importance of budgeting in communication, coordination, and performance evaluation. Finally, it concludes by summarizing the key findings and emphasizing the significance of budgeting as a crucial tool for effective financial management. This report is available on Desklib, a platform providing past papers and solved assignments for students.

Management
Accounting

Table of Content
INTRODUCTION...........................................................................................................................3
ASSESSMENT 1.............................................................................................................................3
CONCLUSION................................................................................................................................5
REFERENCES................................................................................................................................6

INTRODUCTION
MA refers to presenting the information to internal management in order to ensure
smooth functioning of the operations. Budgeting refers to the process of executing, designing
and operating the budgets. It means as managerial process of the budget preparation & planning,
related procedures and budgetary control. It is considered as an integral part of managerial
policies like long term planning, capital expenditure, project management and cash flow.
ASSESSMENT 1
According to Natalia (2018) it has been represented that budget is count as a statement of
responsibilities & decisions which translate into the particular activities & programs. As the tool
of management, a budget that is designed properly could help the managers in achieving
efficiency in administration & honest through the business such as behavior. Budget increases
the accountability and the responsibility of internal management and facilitate valuable
information regarding the direction, expectations and the resources of an entity. A budget is been
signified as an internal part of the management system which mainly aims to promote
communication & coordination within subunits of Phillips along with it provides framework in
judging the performance & encouraging irresponsible employees and the managers. An idea
behind different uses of the budgets in an entity does not seems as new, therefore, in order to
serve as effective tool, budgeting pursue the tasks like forecasting, coordinating, controlling,
planning, facilitating decision making and evaluating the performance (Cools, Stouthuysen and
Van den Abbeele, 2017). The responsibility of every manager is been made clear as budget
would be usually describing an amount of the resources & degree of the authority managers
require & have to attain goal of an Phillips.
Budgeting plays n important role of communication a certain kind of information which
will help the managers in the different parts of Phillips to remain as fully informed about the
policies, plans and constraints towards which an entity expects to conform. Through procedure
of budgeting, top executives communicates their expectations to supervisory level, so that the
members of an entity might understand such expectations and could coordinate their own
activities to achieve them (Hasanova and Korzovatykh, 2016). Most importantly, formulation of
budgets provides transfer of the essential information among all the levels in an entity and thus,
the interaction level are seen as more enhanced during process of budgeting. In consideration
with all the actions of different parts of the firm are get together & reconciled into common plan,
process of budgeting helps in binding an entity together towards an attainment of organizational
goal. With the help of this, without taking any guidance, managers might make their respective
decisions, believing that they are been working in best interest of an entity (Henttu-Aho, 2016).
Moreover, budgeting compels the managers in examining interrelationships & dependency
within different segment of an entity and in process of determining or resolving the conflicts.

There are several different style of the budgeting that includes fixed, flexible and
participative budget which helps the Phillips in preparing the budget with an application of
different policies which helps in developing better understanding. Static or fixed budget means
as the budget which remains as unchanged irrespective of the increase or decrease in the level of
production (Hall, 2016). This budget incorporates an assumed values relating to input and
outputs which are conceived prior to the period of question starts. It is the budget which seems as
easy to execute & follow as he fixed budget does not require to be updated on consistent basis
throughout an accounting period for which they are been intended to recover. However, this
budget mainly lacks flexibility in case the Phillips establishes the budget on the basis of certain
level of the sales volume and the increased volume cannot allocate the additional resources for
keeping up. Static budget could offer deeper insight into firm’s profits & costs when the variance
analysis is been performed. On other note, as this type of budget is framed on basis of previous
or past data, new business might be having more difficulty in implementing & establishing them
(Fehrenbacher, Kaplan and Moulang, 2020). This planning tool allows the firm in seeing in
which area it may result over and underestimating its revenues & expenses so that it could be
able to make alterations in its strategies.
Furthermore, flexible budget means as the budget which adjusts with the changes in the
activity or volume. This budgeting tool is counted a more sophisticated or useful as compared to
fixed budget. It enables the managers of an entity in computing profit, sales and the expenses at
the different level of an operating capacity. It assist in determining quantity of the output that
needs to be produced for helping the firm in achieving desired level of profit. On other side, this
budget needs skilled workers for working on it which is considered as the challenge for an
industry (Boll, 2018). Thus, most of the industries and firms cannot use this type of budget due
to presence of unskilled workers. This planning tool helps management of an Phillips in
identifying production level in the different kind of market and the conditions of business.
However, it is counted as an expensive affair and depend on appropriate accounting disclosures
so if any mistake present in accounts book, the budget will reflect incorrect value or figures. It
also enables in reclassification of several level of the budgeted costs with the revenue so that
managers could easily determine profit areas and might act according to it. This kind of tool
helps in e-casting the budget based on activity level and is not seen as rigid (Alsharari, 2019). On
other state, it depends on the factors of production that are not deemed as in hands of
management. Thus, the predictions could be inaccurate because of such conditions in the
premises.
Participative budget means as the process within which people who are in supervisory
management level are involved in preparation of budget process. It tends to produce the budget
which are more achievable as lower level employees are been positioned for informing their
employers where the funds require to be allocated. When an entity implements the participative
budgeting, this shows the confidence of top executives in their staff (Nkemakolam, 2020). The
sense of employee ownership provides them motivation in working hard & attaining goals that

they helped in preparing. It helps in sharing information from the departmental managers to the
top executives. It means that the workers are given an opportunity in presenting their views on
specific organizational issues. However, this budget is found as time consuming because it
begins supervisory level to top, where too much participation might occur that derail the
procedure (O’Grady, Akroyd and Scott, 2017). Involvement of all the workers in every
department would mean that negotiations which might lead to long time before staff reach a
particular agreement.
The main advantage of participative budgeting is that it helps the managers in easy
communication with their subordinates which further helps in better performance of the business.
However, it is a costly and time consuming affair to implement participative budgeting within an
Phillips and small businesses cannot afford it. It also helps in improving the commitment of
employees towards the fulfillment of organizational goals and objectives. On the contrary, it
focuses only on the growth of single department at a time and not towards the entire organization
which affects the coordination within the workplace (K Chong and Strauss, 2017). The
participative budgeting also helps in preparation of accurate budgets as it involves the help of
lower management and they can project the figures most accurately. Also, the lower level staffs
have a specialized knowledge of operations thus, it helps in preparation of accurate and reliable
budgets backed up by facts & figures. However, it has been argued that participative budgeting
involves pseudo participation as in most cases top level management take complete control of the
budgeting process, it is a major disadvantage of participative budgeting (Rokhman, 2017). The
method is applicable when the organization is involved in diversified businesses and there is a
need for different departments. Additionally, the budgeting technique also gives best results
when the employees are experienced and skilled.
For example- Apple Phillips has a budget of around $10 million in the revenues & $4
million of COGS. Out of this $4 million within budgeted COGS sold, 1 million is counted as
fixed & 3 million as variable which varies with the change in revenue. Therefore, for identifying
the change and updating, flexile budget acts as most suitable tool.
CONCLUSION
The above report summarizes that budget serves as formal authorization for the manager
in spending a certain amount of the money on the particular activities. With respect to this,
budget is been used for ensuring that resources of an organization is been utilized in productive
& profitable manner, for achieving efficiency needed for business operations and thereby
reducing the costs and raising the profitability. Such authorization system needs to be supported
by suitable responsibility type of structure that is adopted by an entity.

REFERENCES
Books and journal
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perspectives. International Journal of Organizational Analysis.
Boll, N., 2018. Is the use of management accounting in startups a paradox?-A systematic
literature review of how static management accounting practices can support dynamic
startups. Junior Management Science. 3(4). pp.48-64.
Cools, M., Stouthuysen, K. and Van den Abbeele, A., 2017. Management control for stimulating
different types of creativity: The role of budgets. Journal of Management Accounting
Research. 29(3). pp.1-21.
Fehrenbacher, D.D., Kaplan, S.E. and Moulang, C., 2020. The role of accountability in reducing
the impact of affective reactions on capital budgeting decisions. Management Accounting
Research. 47. p.100650.
Hall, M., 2016. Realising the richness of psychology theory in contingency-based management
accounting research. Management Accounting Research. 31. pp.63-74.
Hasanova, V. and Korzovatykh, Z., 2016. The CONCEPT and ESSENCE of BUDGETING IN
MODERN CONDITIONS. Vestnik Universiteta. (2). pp.134-140.
Henttu-Aho, T., 2016. Enabling characteristics of new budgeting practice and the role of
controller. Qualitative Research in Accounting & Management.
K Chong, V. and Strauss, R., 2017. Participative budgeting: the effects of budget emphasis,
information asymmetry and procedural justice on slack-additional evidence. Asia-Pacific
Management Accounting Journal (APMAJ). 12(1). pp.181-220.
Natalia, S., 2018. PROGRAM BUDGETING MEANING ANDIMPLEMENTATION
BENEFITS. European journal of economics and management sciences. (2).

Nkemakolam, A., 2020. A Perspective View of Budget Control As A Tool For Management
Decisions Making.
O’Grady, W., Akroyd, C. and Scott, I., 2017. Beyond budgeting: distinguishing modes of
adaptive performance management. Advances in management accounting. 29. pp.33-53.
Rokhman, M. T. N., 2017. Improving Managerial Performance through Participation Role of
Budget Preparation: a Theoretical and Empirical Overview. Journal of Economics and
Finance. 8(1). pp.39-43.