Management Accounting Report: Budgeting Process and Analysis

This report provides a comprehensive analysis of the budgeting process within the context of management accounting. It begins with an executive summary highlighting the importance of budgeting in strategic planning, followed by an introduction that emphasizes its role in implementing business plans and achieving objectives. The report is divided into two main parts: the first presents a detailed computation of inventory, purchases, and budgeted gross profit through tables and working notes. The second part delves into budgeting as a non-technical process, outlining key steps such as financial objective determination, fund availability assessment, and the consideration of environmental uncertainties. It explores various budget types, including sales, cash, and production budgets, emphasizing the significance of sales budgets. The report also discusses the roles of top-down and bottom-up budgeting approaches, alongside the budget's broader impact on the economy and government policies. A concluding section summarizes the key findings and offers recommendations, supported by a comprehensive list of references.

Management Accounting

Table of Contents
Executive Summary.........................................................................................................................3
Introduction......................................................................................................................................3
Part one............................................................................................................................................3
Part Two...........................................................................................................................................4
A) Budgeting: A non-technical process.......................................................................................4
B) Professional Presentation........................................................................................................9
Conclusion and Recommendation...................................................................................................9
References......................................................................................................................................10

EXECUTIVE SUMMARY
Budget is always based on some estimation. The estimation applied by the company for making
the budget such as trend of sales, environmental aspects, cost trends and others. In the given
study, importance of the budget along with its process is prescribed. Budget plays a very
important role in the strategic planning of the company, as it is used as observation of the profit
and associated risk in the profit generation capacity.
INTRODUCTION
Strategic implementation of the business plan is possible through the budgeting in an easy
manner. For achieving the objectives of the business, it is required for the company to prepare
some budget and establish the performance indicators. The present study is related with the
determination of the budgeting process as technical or non-technical. This study contains the
practical solution of related with the preparation of budget.
PART ONE
Preparation of Budget
Table 1 computation of inventory and purchase (Amount in $)
Item
March
Quarter June Quarter
September
Quarter
Nine Month
Total
Total Sales 117500 121456 119456 358412
COSG 70500 72873.6 71673.6 215047.2
Closing Stock 56862.1 56502.1 56600 169964.2
Opening Stock 47890 56862.1 56502.1 161254.2
Purchases 79472.1 72513.6 71771.5 223757.2

Statement of Budgeted Gross Profit
Table 2 Statement of Budgeted Gross Profit (Amount in $)
Item
March
Quarter
June
Quarter
September
Quarter
Nine Month
Total
Total Sales 117500 121456 119456 358412
Add - Closing Stock 56862.1 56502.1 56600 169964
Less – Purchase 79472.1 72513.6 71771.5 223757
Less - Opening Stock 47890 56862.1 56502.1 161254
Gross Profit 47000 48582.4 47782.4 143365
Working Notes –
 Cost of goods sold is like 60% of total sales of the current quarter
 Closing stock is computed by 35000 plus 30% of the cost of goods sold of next three
months (quarter).
 Opening stock is the closing stock of last quarter.
 Purchases are computed by addition of the closing stock in the cost of goods sold and
deduction of the opening stock.
PART TWO
A) Budgeting: A non-technical process
Future profit or expenditure can be determined by the implementation of the budget process
(King, 2015). For keeping the record of income and expenditure budgeting process is applied by
the organizations. In order to the management of the finance of the company, it is considered as

controlling and monitoring technique. This process is started by the determination of the
financial objective of the company, and on the basis of this budget will build. In addition,
prediction, controlling, monitoring, analyzing, and evaluation of the monetary objectives are
considered as other important elements of the budgeting process (McDONALD, 2016).
For any business entity, the budget process plays a very important role. A business can tract its
earnings and expenditure only through a proper budget. It is referred as a guideline, which can be
used by the company for observation of its profit stream and can ascertain probable risk
associated with its earning generating capacity (Wolf, and Floyd, 2017). It is an important
technique with respect to putting control in the manner of spending by business. The main
objective of the company preparing the budget is to ensure that all money spends in the right
direction and for the achievement of the financial objective.
Although budgeting is the detailed process, in which some steps are included, it is not a technical
process(Blanchard, 2015). Steps, which should be followed by the company, at the time of
preparation of the budget is as follows –
These estimations must be review by the management by considering the present situation,
before building the budget (Dudin et al. 2015).Non-availability of the money may lead to
difficulty for the company. Therefore, the company should give sufficient consideration to the
availability of the fund as and when required. Further, the adequacy of investable funds will
ascertain the starting of viable projects (Fenton et al. 2015).
Due to the uncertainty in the environment, there is a possibility that it may face any difficulty
and problem, which may lead to a change in manner of calculation total cost. Therefore, the
management should consider the elements by which the cost structure of the company may

changes, at the time of preparation of the budget. For the reliability of budgeting factors, all these
elements are identified in advance by the management of the company (Johnsen, 2015).
For making the current period budget, management should consider the data of the previous year.
On the basis of any change in environmental conditions, updating in the previous budget is
required. Budget package is considered as a type of outline, on the basis of which budget is
prepared (Sull, Homkes, and Sull, 2015).
There are several types of budget which are prepared by the company, such as cash budget,
purchase budget, sales budget, production budget and many others. Among these budget, sales
budget is one of the comprehensive budgets. Moreover, all budgets are made after considering
the sales budget. By the sales budget, a company can ascertain whether it can generate adequate
revenue, which is essential for the survival of the business. Therefore, management should give
sufficientconsideration for the prediction of the demand, so that sales budget can be made on the
basis of reliable assumptions (Reilly, Souder, and Ranucci, 2016).
By obtaining the budget of departments, a company can identify the budget expenditure for the
entire budgeted period. Every department of the company prepares its own budget, and all the
departmental budget are combined in order to create the master budget (Shaw, 2016).In the
process of budget, reimbursement plays a significant role. Since the reimbursement provided by
the company is subject to yearly enhancement; therefore, it must be prepared by management
carefully. The top management or senior executives are responsible for approving increment in
the compensation should be obtained, and on the basis of this budget process is determined
(Papke-Shields, and Boyer-Wright, 2017).

For the encouragement to the employee of the company, the bonus plan is announced. It is
considered as appraisal method, by which workers are guided towards for improving their
performance. If the bonus plans are not considered at the time of preparation of the budget, then
it may significantly affect the budgeted profits. Therefore, any bonus plan which will be
announced by the company in the budgeted period must be considered by management in
advance while preparing of the budget (Arnold, and Gillenkirch, 2015).
The company incurs the capital expenditure for the expansion of the business. It assists the
company in grabbing the opportunities which are essential for the growth. If the company has
any planning for capital expenditure, then management must consider this expenditure in the
budgeting process in advance (Bagheri, 2016).
If there is any change in the estimation, then management should change the model of budget
accordingly and prepare the final budget in a timely manner. After the preparation of the budget,
it should be reviewed by the management by which an error can be identified. Any minor error
may lead to failure of the budgeting process (Ebdon, and Franklin, 2015).
After all the above process, it must be presented to the top management of the company for
getting the permission of implementation of the budget. The top management of the company
reviews the budget and ascertainswhether it is prepared according to the existingcondition of the
company;whether all essential points are considered while making a budget and many other
aspects. Finally, if it is approved by top management, then there is no change required in the
budget.
After the approval by top management of the company, the budget is issued, and all operation is
taking place as per the budget process. By considering the above analysis, it has been drawn that

the process of the preparation of the budget is the lengthy process, which required significant
time. It is not a technical process. A small business organization, as well as a large business
organization, can prepare their budget easily. Along with this, there are two approaches, namely,
Top – Down Budget and Bottom-up Budget by which a budget can be prepared, which are
defined as below –
Top-Down Budget:In this approach, the primary outline of the budget is created by the top
executives of the company. They identify the financial objective of a company which is required
to maintain. In addition, estimations related to the sales, reimbursement, capital budget and many
others are provided by senior executives of the company. In this time, the participation by the
lower management is very less. They only execute the plans which are provided by the top
executives in the budgeting process.
Bottom – Up Budget:This approach is referred to as the contributory approach in the budgeting
process. In this type, the lower level management or the employee of the company prepare the
budget. They prepare a budget as per the guidelines provided by the top executives of the
company. Every division of the company formulates its own budget as per the guidelines
provided by the top management of the company. In this, an employee of the company seems
more committed to following the budget, as they participate in the budgeting process (Beckeret
al. 2016).
Apart from the above aspects, the budget play significant role in the economy of the country. It
provides detailed guidelines; on the basis of this government make the policies to run the
country. It sets the target for the revenue and costs, which can be obtained through a variety of
manner. Along with this, it also makes plans for capital expenditure of the country;the

government can ascertain about the availability of funds and accordingly make the strategies for
the investment of funds since the budget reliability outlines the expenditure. Therefore the
budgeting process assists the government in putting control over the spending. Without a proper
budget, the government cannot track the records of its revenue and expenditures. Therefore, it
can be said that the budget offers them several predictions by which they can ascertain about the
manner of carrying the operations.
B) Professional Presentation
Given in the power point presentation
CONCLUSION AND RECOMMENDATION
By considering all the above aspect, it has been drawn that by development of the predicated
financial statement, management can prepare the plans and policies and determines whether it is
beneficial for the company to run the business. Therefore, the management thinks that it is
purely technical process, which requires the prediction, controlling and the evaluation of the
financial objectives of company. Further, it has been analyzed that the budget is a non-technical
process, with aspect to the adequacy of budgeting as a political process. Financial management
system of the country significantly influenced by the political governance, therefore for
establishing the responsibility of governance system, proper budgeting system is required.

REFERENCES
Arnold, M.C. and Gillenkirch, R.M., 2015. Using negotiated budgets for planning and
performance evaluation: An experimental study. Accounting, organizations and society, 43(1),
pp.1-16.
Bagheri, J., 2016. Overlaps between human resources’ strategic planning and strategic
management tools in public organizations. Procedia-Social and Behavioral Sciences, 230(1),
pp.430-438.
Becker, S.D., Mahlendorf, M.D., Schäffer, U. and Thaten, M., 2016. Budgeting in times of
economic crisis. Contemporary Accounting Research, 33(4), pp.1489-1517.
Blanchard, L.A., 2015. PART and performance budgeting effectiveness. In Performance
Management and Budgeting(pp. 81-105). Routledge.
Dudin, M., Kucuri, G., Fedorova, I., Dzusova, S. and Namitulina, A., 2015. The innovative
business model canvas in the system of effective budgeting. Asian Social Science, 11(7), pp.290-
296.
Ebdon, C. and Franklin, A.L., 2015. Democracy, public participation, and budgeting: Mutually
exclusive or just exhausting?. In Democracy and public administration (pp. 96-118). Routledge.
Fenton, P., Gustafsson, S., Ivner, J. and Palm, J., 2015. Sustainable Energy and Climate
Strategies: lessons from planning processes in five municipalities. Journal of Cleaner
Production, 98(1), pp.213-221.
Johnsen, Å., 2015. Strategic management thinking and practice in the public sector: A strategic
planning for all seasons?. Financial Accountability & Management, 31(3), pp.243-268.
King, W.R., 2015. Planning for Information Systems: An Introduction. In Planning for
information systems (pp. 15-28). Routledge.
McDONALD, M.A.L.C.O.L.M., 2016. Strategic marketing planning: theory and practice. In The
marketing book (pp. 108-142). Routledge.
Papke-Shields, K.E. and Boyer-Wright, K.M., 2017. Strategic planning characteristics applied to
project management. International Journal of Project Management, 35(2), pp.169-179.
Reilly, G., Souder, D. and Ranucci, R., 2016. Time horizon of investments in the resource
allocation process: Review and framework for next steps. Journal of Management, 42(5),
pp.1169-1194.
Shaw, T., 2016. Performance budgeting practices and procedures. OECD Journal on
Budgeting, 15(3), pp.65-136.

Sull, D., Homkes, R. and Sull, C., 2015. Why strategy execution unravels—and what to do about
it. Harvard Business Review, 93(3), pp.57-66.
Wolf, C. and Floyd, S.W., 2017. Strategic planning research: Toward a theory-driven
agenda. Journal of Management, 43(6), pp.1754-1788.