Management Accounting Report: Budgeting, Variance, and Apple Inc.

This report on management accounting explores the purposes and principles of budgeting, including forecasting, decision-making, and performance monitoring. It delves into different types of budgets such as master, operating, and financial budgets, and explains their relationships with management by exception. The report also covers budget variance analysis, highlighting favorable and unfavorable variances. Furthermore, it examines the budgeting process, assumptions, and how budgeted performance compares to past results. The second part of the report provides a case study on Apple Inc., analyzing its financial performance and budgeting practices, including its revenue, expenses, and income growth over a three-year period and evaluating its budgeting accuracy and forecasting methods. The report concludes with a list of references.

Running head: MANAGEMENT ACCOUNTING
Management accounting
Name of the student
Name of the university
Student ID
Author note

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Table of Contents
Part I...........................................................................................................................................2
Part II..........................................................................................................................................5
Reference....................................................................................................................................6

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Part I
Three purposes of budgeting are –
Three purposes of budgeting are forecasting the expenses and income and thereby
forecasting the profitability. It can be used as a tool for the purpose of decision making. It can
further be used as a tool to monitor the performance of business (Kaplan & Atkinson, 2015)
Purposes of different budgets –
Master budget integrate, co-ordinates activities of different functional areas of the
organization and helps the employees to achieve gaol through communicating and
motivating. Planned operating budget helps in forecasting the operational expenses and
revenues and helping the management with planning process (Kaplan & Atkinson, 2015).
The financial budget facilitates in coordinating the activities among the departments along
with aligning the activities to big picture of the entity’s strategic plan.
Relation of budgeting with management by exception concept
MBE (Management by exception) is the practice where the significant deviations
from the budget are only bought into the management’s attention. The main objective behind
this is to draw attention of the management in the areas only those are in need of the action.
Five basis principles to prepare meaningful budget
Five basis principles to prepare meaningful budget are clear lines for the
accountability, responsible fiscal management, good information regarding finance,
flexibility to respond to the challenges over short term period and make a plan for the long-
term vision and stability in the process of decision making (Kaplan & Atkinson, 2015). Each

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principle is important for making the critical decisions regarding how to balance the revenues
and ensuring successful future and sustainability for the entity.
Budget variance
Budget variance is difference among the budgeted revenues or expenses and actual
amount of revenues or expenses. It is favourable if actual revenue is more than the budgeted
revenue and when actual expenses are less than the budgeted expenses.
Major Master Budgets
Two major budgets under master budget are operating budget and financial budget
(Xu, Zhang & Pinedo, 2018). Operating budget is prepared 1st as it represents the revenues
and expenses and based on that the financial budget is prepared as it represents the inflows
and outflows for cash that is prepared based on the operating budget (Ma, 2016).
Difference among master budget and responsibility budget –
Master budget is considered as aggregation of all lower level budget produced by the
entity for different functional areas and it includes budgeted financial statement, financing
plan and cash forecast. On the other hand, responsibility budget is prepared by the company
for revenues and expenses those are specifically controlled through charting expenses those
are controlled by managers (Gu, 2019).
Budget established at beginning of given period for supplies expense is amounted to $40,000.
At the end of the period, the supplies used amounted to $44,000 –
Yes, as there is difference of ($ 44,000 - $ 40,000) = $ 4,000 among the beginning
balance and ending balance.
Assumptions for business environment while preparing the budget

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Assumptions for business environment while preparing the budget are regarding
expected income, expected expenses, Changes and potential problems
Budgeted performance better than the past performances –
The budgeted performance is better as compared to the past performance as the basis
to judge actual results owing to inefficiencies in the past performances can be adjusted or
eliminated while preparing the budget. Apart from that, another reason is the future scenario
including changes in competition level, products, technology and price may vary from the
past scenario and that may factored in the budget adequately (Barr & McClellan, 2018).

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Part II
Apple Inc. the technology multinational company from America is engaged into
developing, designing and selling the computer software, consumer electronics, online
services and computer software. As the company carries on its business on global basis and
deals in various products, it is significantly important for it to prepare the budget in advance
to forecast the income and expenses and make the future plans based on that (Apple, 2019).
Details of the entity for last 3 years with regard to its net income and operating income are as
follows –
It can be seen from the above table that owing to economy growth and increase in
demand in the market the operating income as well as the net income of the company has
been improved in 2017 as compared to 2016. Based on the growth rate the company
budgeted that the company will continue to grow in next year also that is in 2018. As a result
the company prepared it budget on the basis that sales will be increased by 35% and expenses
will be increased by 25% (Csimarket.com, 2019). The reduction in expenses was expected as
it will get the raw material at discounted price due to bulk purchase. Hence, keeping pace
with the increase in sales the operating income increase was budgeted as 15% and net income
increase was budgeted as 25% in 2018 (Csimarket.com, 2019). It can be seen from the above
that the company over achieved the target in 2018.

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Reference
Apple. (2019). Site Map. Retrieved 17 February 2019, from https://www.apple.com/sitemap/
Barr, M. J., & McClellan, G. S. (2018). Budgets and financial management in higher
education. John Wiley & Sons.
Csimarket.com. (2019). Apple Inc Net Income Growth Rates (AAPL), Current and Historic
Growth - CSIMarket. Retrieved 17 February 2019, from
https://csimarket.com/stocks/single_growth_rates.php?code=AAPL&net
Gu, Y. (2019, January). Problems and Countermeasures of Fine Management of Budget
Implementation in Colleges and Universities. In 2018 6th International Education,
Economics, Social Science, Arts, Sports and Management Engineering Conference
(IEESASM 2018). Atlantis Press.
Kaplan, R. S., & Atkinson, A. A. (2015). Advanced management accounting. PHI Learning.
Ma, S. (2016, January). A platform of comprehensive budget management system. In 2016
International Conference on Civil, Transportation and Environment. Atlantis Press.
Xu, Y., Zhang, J., & Pinedo, M. (2018). Budget allocations in operational risk
management. Probability in the Engineering and Informational Sciences, 32(3), 434-
459.

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