Management Accounting Report: Budgeting and Manager Motivation

This report delves into the realm of management accounting, specifically focusing on budgeting techniques and their practical application within Heritage Plc, a company involved in producing and selling electronic goods. The report begins by defining budgeting and elucidating its purpose, highlighting its role in financial planning, forecasting income and expenses, and facilitating informed decision-making. It then explores the planning and control cycle in the context of budget preparation, outlining the key phases involved. Furthermore, the report examines how budgeting and the budgeting process are leveraged to motivate managers, emphasizing the significance of setting realistic targets, encouraging participation in the budget-setting process, and fostering a sense of ownership among employees. The report concludes by summarizing the key findings, emphasizing the pivotal role of budgeting in optimizing resource allocation, enhancing financial performance, and driving overall organizational success.

Management Accounting

TABLE OF CONTENTS
INTRODUCTION......................................................................................................................1
1. Defining budget and discussing purpose of preparation....................................................1
2. Describing planning and control cycle in the context of budget preparation....................3
3. Discussing the ways in which budget and budgeting process is used to motivate
managers................................................................................................................................5
CONCLUSION..........................................................................................................................6
REFERENCES...........................................................................................................................7

INTRODUCTION
Management accounting may be served as tool which is undertaken by business
organization for making effective short term decisions. In order to attain high profit margin
firm is required to exert effectual control on cost. Tools and techniques of MA helps business
unit in assessing loopholes and gives input for decision making. The present report is based
on Heritage Plc which is involved in the activities such as producing and selling of electronic
goods. Company lays high level of emphasis on budgeting technique with the motive to make
optimum use of financial resources. In this, report will provide deeper insight about how
budgeting technique or process helps in enhancing the motivational aspect of personnel.
Along with this, it also shed light on the manner through which control can be exerted on
spending through the means of budgeting.
1. Defining budget and discussing purpose of preparation
Budget: It consists for the financial plan that contains information about planned revenue,
expenses and other activities. Hence, budget implies for the framework which is related to the
specified time frame such as quarterly, half yearly or annually. Budgeting is the formal
process undertaken by firm for spending money in business activities. In the recent times,
budgeting is most effectual techniques that provide high level of assistance to firm about the
manner in which they need to spend money (Granlund and Lukka, 2017). Case scenario
presents that Heritage Plc also lays high level of emphasis on undertaking budgeting
technique for the development of competent financial plan that facilitates effective utilization
of resources. The rationale behind adoption of such technique is that it helps business unit in
gaining competitive edge over rival firm on sustainable basis. In addition to this, the main
motive of Heritage Plc behind the preparation of budget is to ascertain the position of deficit
or surplus. By taking into account such aspect and making evaluation of same firm can
develop suitable policies for the upcoming time period.
Heritage Plc prepares budget with the motive to fulfil following objectives or purposes
such as:
 Facilitates forecast of income and expenses: Budgeting is the significant or vital part
of business planning or process which is undertaken by firm to make proper forecast
of income as well as expenses. In the business organization, proper management of
cash flow is highly required to implement all the business activities in a prominent

way. Hence, through the means of budgeting manager of the firm can estimate both
income as well as expenses and thereby would become able to assess financial
requirements. Hence, by undertaking budgeting tool Heritage Plc can identify the
income which will be generated during a specific time frame over the expenses.
 Tool for decision making: Monitoring business performance: Budget gives input to
the business organization for measuring and monitoring business performance. By
using budget, manager of Heritage Plc can make comparison of actual performance
with the predetermined standards or figures. This in turn helps company in identifying
the loopholes which take place in performance and relative causes (Purpose of
budgeting, 2017). In this way, budgeting technique gives clear indication to the
manager in relation to taking strategic measure or action for performance
improvement. Thus, it can be stated that budgeting technique provides high level of
assistance to the firm in controlling the level of spending and thereby helps in
achieving goals.
 Facilitates optimum allocation of resources: Heritage Plc prepares budget with the
aim to decide the level to which funds need to be allocated in different activities. In
this regard, business unit makes high level of focus on undertaking modern budgeting
techniques such as activity and zero based budgeting technique. Such tools provide
high level of assistance to the company in identifying and elimination redundant
business activities. Hence, concerned modern budgeting techniques eliminate wastage
and thereby ensure optimum use of financial resources. In addition to this, by
conducting capacity constraints analysis Heritage Plc can easily determine the areas
or fixed assets in which fund should be allocated.
 In addition to this, Heritage Plc lays high level of emphasis on using budgeting
technique for identifying financial requirements. Moreover, budget gives idea to the
business organization about how much fund is available and the level to which it
needs to be raised from different sources (Budgeting purpose, 2017). This aspect
shows that budgeting technique enables firm to prepare sound financial framework or
structure.
 By laying focus on budgeting technique firms can co-ordinate the efforts of all
departments towards the attainment of common goals and objectives. For instance:
Maximization of profitability is the main motives of Heritage Plc. In this, by
undertaking budgeting technique firm would become able to make control on over-

utilization. This in turn positively contributes in margin and assists company in
enhancing financial performance.
 Along with this, company prepares or undertake budgeting technique with the aim to
fix responsibilities of different departments. Through the means of budgeting
technique firm can assigns responsibilities to the manager and thereby encourages
them to the achieve the same. Hence, considering all such purposes Heritage Plc
focuses on the aspect of budget preparation.
2. Describing planning and control cycle in the context of budget preparation
Budget cycle: It includes mainly four phases which are undertaken by Heritage plc
with the aim to take optimum use of financial resources. Hence, by focusing on all such
aspects or phases firm can take strategic move for fulfilling organizational goals and
objectives.
 Preparation and submission: In the first step of budget cycle, company lays more
focus on preparing financial framework by making estimation of revenue and
expenditure. At this stage, manager who is assigned with the responsibility of budget
preparation focuses on collecting financial projections from each department.
Thereafter, manager combines all the data set and prepares final framework (What Is
the Budget Cycle?, 2017). Once framework has been developed then competed budget
is submitted to individuals who are accountable to review the same and giving
recommendations for further improvements.
 Approval of budget: At second stage, manager takes approval from the higher
authorities before circulating the same. In the business unit, formality of approval is
highly influenced from its size. Heritage Plc is recognized as sole proprietorship firm
so in this owner gives their approval. Hence, in the context of such electronic good
company, manager presents budgeting framework to owner for taking approvals.
 Implementation: Once, budget has been passed by higher authorities then manager
circulate it at each level. This in turn enables each department such as production,
operations, HR, marketing and R&D to perform or carry out activities as per
predetermined financial standards. Moreover, in the absence of having suitable
framework personnel face issue in determining the amount needs to be incurred in
different activities such as production, administration, selling and distribution. In this,
lack of awareness leads overspending and thereby impacts financial position as well

as performance. Thus, by circulating and implementing the budget framework
personnel of Heritage Plc can attain goals prominently.
 Budget evaluation: In the last stage of budgeting cycle, manager of the firm makes
assessment of actual performance in against to predetermined figures. Continuous
monitoring of business and financial performance is highly required to build as well
as sustain competitive edge over others (4 Phases of a Budget Cycle, 2017). On the
basis of such aspect, by making performance evaluation Heritage Plc can identify the
extent to which deficiencies are taken place in the financial performance. Hence, such
stage of budget cycle gives clear indication to the business unit about taking strategic
action for performance improvement.
(Source: 4 Phases of a Budget Cycle, 2017)
Thus, following all the above mentioned aspect firm can utilize financial resources to the
full extent. Along with this, such cycle or process also assists Heritage Plc in developing
suitable policy framework for the near future. Moreover, now competition level is increased

in each industry to a great extent. In this regard, effective planning in terms of both financial
and non-financial aspects becomes the prior requirement. Hence, by focusing on financial
planning tool such as budgeting firm can achieve success.
3. Discussing the ways in which budget and budgeting process is used to motivate managers
From assessment, it has been found that process of budgeting is highly significant
which motivates manager of organization to the significant level. However, budget should be
realistic in nature because only preparation of the same is not enough. Moreover, when
targets are high in comparison to the market trend or behaviour then employees do not make
their best efforts (Rubin, 2016). This in turn closely and negative influences the motivational
aspect of personnel. Thus, suitable budget framework is the prior requirement to motivate
personnel.
 Setting targets for financial performance: Targets which are setting down by
business unit has significant impact on employee motivation and participation.
Personnel are encouraged to perform activities in the best possible way only when
targets are achievable. Thus, for motivating managers Heritage Plc should focus on
the development of SMART objectives or framework. By doing this and providing
personnel with competent financial plan company can get the desired level of
outcome or success. Along with this, budgeting technique helps in making effective
comparison of actual performance with budgeted aspect (Bogsnes, 2016). This in turn
helps company in identifying deviation and causes associated with the same.
In this way, by keeping such aspect in mind the causes Heritage Plc can set realistic
target and thereby would become able to encourage workforce. For instance: Through
budgetary control tool it has been assessed that sales revenue standard such as 45% which
was setting down by Heritage Plc not realistic. Moreover, in the competitive situation, it
is not possible for the firm to attain such sales revenue target. In this regard, by analyzing
market trend and competitors offerings business organization can set suitable target or
standards.
 Participation in the budget-setting process: In the recent times, company lays high
level of emphasis on employee participation in decision-making aspect. Now,
business unit undertakes participative leadership style which in turn encourages
personnel to a great extent. Thus, by involving personnel in budget setting process
company can motivate personnel significantly (Menifield, 2017). Now, business unit

assumes that manager of each department has better idea about money required to
carry out business activities more effectively and efficiently. In this way, by taking
input from each department Heritage plc can prepare suitable monetary plan. Along
with this, when management team takes input from each departmental head and
personnel then they are encouraged to make their best efforts (Otley, 2016).
Moreover, in such case, personnel are highly aware from the objectives and try to
attain the same. By considering all such aspects, it can be stated that through
involving employees in decision making Heritage Plc can encourage them to make
optimal use of monetary resources.
CONCLUSION
From the above report, it has been concluded that budget assists personnel about the
pattern of spending and thereby ensures optimum use of resources. Besides this, it can be
inferred that Heritage Plc makes high level of focus on budgeting technique with the motive
to make effective allocation of financial resources. Further, it has been articulated that
structure process is followed by the company to develop sound and appropriate framework. It
can be seen in the report that by setting SMART objectives business unit evolve satisfaction
among the personnel and encourage them towards better performance. Along with this, it can
be summarized from the report by involving personnel in the budget formulation process firm
can increase motivational aspect of them to a great extent.

REFERENCES
Books and Journals
Bogsnes, B., 2016. Implementing beyond budgeting: unlocking the performance potential.
John Wiley & Sons.
Granlund, M. and Lukka, K., 2017. Investigating highly established research paradigms:
Reviving contextuality in contingency theory based management accounting
research. Critical Perspectives on Accounting. 45. pp.63-80.
Menifield, C. E., 2017. The basics of public budgeting and financial management: A
handbook for academics and practitioners. Rowman & Littlefield.
Otley, D., 2016. The contingency theory of management accounting and control: 1980–
2014. Management accounting research. 31. pp.45-62.
Rubin, I. S., 2016. The politics of public budgeting: Getting and spending, borrowing and
balancing. CQ Press.
Online
4 Phases of a Budget Cycle. 2017. [Online]. Available through:
<http://smallbusiness.chron.com/4-phases-budget-cycle-71723.html>.
Budgeting purpose. 2017. [Online]. Available through: <
http://www.cityofdubuque.org/1326/Purpose-of-a-Budget>.
Purpose of budgeting. 2017. [Online]. Available through:
<http://smallbusiness.chron.com/important-business-budget-385.html>.
What Is the Budget Cycle? 2017. [Online]. Available through:
<https://yourbusiness.azcentral.com/budget-cycle-2165.html>.