MBA605: Managerial Accounting Report on Budgeting Systems

This report provides an in-depth analysis of budgeting systems within the context of managerial accounting. It begins with an introduction and literature review, exploring the significance of budgeting, its various types (including traditional, flexible, and activity-based costing), and the challenges faced in service industries. The report then describes budgeting systems, specifically in the service sector, and their role in achieving corporate goals and measuring performance, particularly within logistics. A case analysis of Aramex, a leading global logistics provider, is presented, highlighting the application of flexible budgeting and adaptive control. The discussion section addresses the importance of aligning budget objectives with corporate strategies and the limitations of traditional budgeting approaches. The report concludes by emphasizing the need for integrated budgeting systems and the customization of budgeting tools to fit an organization's unique structure and environment. The report also references the application of flexible budgeting, variance analysis and the measurement of performance in logistical activities.

Running head: MANAGERIAL ACCOUNTING
Managerial accounting
Name of the Student
Name of the University
Author Note

MANAGERIAL ACCOUNTING
Table of Contents
1. Introduction:...........................................................................................................................2
2. Literature review:...................................................................................................................2
3. Description:............................................................................................................................5
3.1. Budgeting system in service industries...............................................................................5
3.2. Budgeting and achievement of corporate goals..................................................................6
3.3. Performance measurement of logistics using budgetary system:.......................................6
4. Case analysis:.........................................................................................................................7
5. Discussion:.............................................................................................................................8
6. Conclusion:..........................................................................................................................10
..................................................................................................................................................11
7. References list:.....................................................................................................................11

MANAGERIAL ACCOUNTING
1. Introduction:
The research paper presented here discusses and analyzes the budgeting system of
company operating in United Arab Emirates. Analysis of budgeting system in Aramex have
been demonstrated which is the leading global provider of transportation solutions and
comprehensive logistics (Aramex.com, 2018). The budget is an important instrument for
planning, controlling and executing that helps in creation of guidelines of managerial and
operational decision making by converting strategic objectives into operational goals. It also
intends to reveal the budgeting significance to organization, identification of budgetary
problems and suggesting budgetary solutions. The method of scientific literature analysis,
case analysis and comparison of case analysis with analysis generated from literature review
contributes to the objective of writing this research paper. For this purpose, several articles
depicting budgeting concepts, its importance, issues and suggested solutions have been
analyzed. Furthermore, the case analysis demonstrates the proposed budgetary techniques and
approach for the selected company.
2. Literature review:
Literature addresses the process of budgeting and identification of more efficient
process and practices, investigation should be done in a more ample manner. Budgeting
system is an effort on part of organization to quantify the utilization and intake of resources
concerning two functions of management that is controlling and planning. The corner stone
of control process of management is budgeting that helps in planning and targeting of
financial values making the progress transformed into strategic ideas and easily measurable.
Nevertheless, organization using traditional budgets fails to meet the demand of competitive
environment and they are criticized on ground of increasing budget games and impeding
efficient allocation of resources. Such budgeting system is criticized because of its costly and

MANAGERIAL ACCOUNTING
time consuming character along with its lack of ability to adapt to changing environment of
organization in which it operates.
The predominant theme that has been identified in the literature is that the budgeting
and planning process used in organizations are failing to deliver the required results. The
alternative budgetary methods have been considered in the literature by accounting for
criticism and limitations of traditional budgeting. With the modern business environment, the
traditional concept of budgeting has lost its relevance because the needs of managers are no
longer satisfied by it. The shortcomings of traditional budget is addressed by proposing two
distinct approaches and such budgeting approach comprised of better budgeting and beyond
budgeting approach (Kwa et al., 2015). Under the approach of better budgeting, the
budgeting process is presumed to be improved by focusing on problems associated with
budgeting planning. Approach of beyond budget on other hand concentrates on the problems
of performance evaluation relating to budgeting by making radical changes to budgeting
(Butler & Ghosh, 2015). It has been ascertained that among many companies, the most
common budgeting practices is traditional budgeting that is understood as annual fixed
budgets. The shortcomings of traditional budgeting practices are addressed by development
of new approaches of management control (Burns, 2015). Such methods involve rolling
budgets, activity based costing and forecasting. Scientific literature demonstrates different
types of budgeting namely fixed, zero based, flexible, continuous and ABC. However, it is
indicated by empirical research that organizations feel increasingly disappointed with
traditional budgeting and requires changes in this particular field.
Goal establishment by management is entailed in the basic concept of budgetary
control and budgeting and this will guide in planning activities and quantifying in financial
terms. Organization makes use of policy or regulatory framework for exercising budgetary
control within the organization.

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The significance and nature of budgets that are significant to organizations comes
with suggestions that most of the problems associated with the budgets can be avoided
through an integrated approach. Such integrated approach combines multiple types of budget
and eliminating the weakness and strength by using strengths. In many organizations, there is
no alignment between the budget objectives and strategies as they are involved in making
operating and annual budgets. Weakness of budgets should be precluded by combing several
budgets such as operating, annual, flexible and strategic budgets (Nicovich, 2015). Therefore,
budget is required to include both strategic and annual budget.
Nonetheless, a mixed picture is presented by the literature regarding usage of
alternative budgeting techniques. It has been found that a wide range of budgeting tools are
used by organizations while smaller companies make least use of budgeting tools. Since
every organization for their financial planning has their unique requirement makes budgeting
stand at cross roads. Creating selection between alternative and traditional budgeting system
is not a simple choice and direct and indirect effects are produced by each budgeting model
because each model generates a non intuitive outcomes and complex interactions (Ansari et
al., 2017). The findings generated from several studies seem contradictory and there exist
difference in system of budgeting due to organizational cultures, inevitable influences and
specific business environments. Studies from literature has examined that companies prefer
modifying the budgeting method and adapting to the needs of managerial requirements rather
than moving away from traditional budgets. The evolution of budgets has received
contribution from each alternative budget systems. Moreover, the alternative methods of
budgeting do not offer standardized solution for the problems of budgeting in every
organization (Seaopenresearch.eu, 2018). Each organization is required to find out their
combination of tools of management so that they are able customize their internal system of

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budgeting while considering structure, culture, information technology infrastructure, history
and other internal requirements (Lu & De Bock, 2015).
3. Description:
3.1. Budgeting system in service industries
It is suggested by literature that the most suitable method of budgeting for service
companies in general is activity based costing. The world class logistics integrators are the
good example using approach of Activity based costing that helps in analysis of cost of
controlling process, delivery routes, pricing of services and customer profitability studies.
Service orientation of ABC becomes more obvious when it is extended to include the
activities of logistics, sales, marketing, corporate staff and purchasing (Hansen, 2017). The
managerial issues faced by service companies are exactly same as that of manufacturing
companies. Method of ABC is required to create link between cost of resources they supply
to the revenues earned by servicing customers and selling individual products using such
resources. This is so because once supply of resources has been committed, the operating
expenses are fixed and therefore, service organizations require more insight into costing
compared to manufacturing organizations. Understanding the cost of business process,
customer, products and cost of activities are useful to service companies and such cost
information is demanded due to different classes of managerial decisions (Bhimani et al.,
2017). Such decisions are classified into budgeting the supply of resources to organization,
managing services, customers and products and configuring of delivery chain for customer
service.

MANAGERIAL ACCOUNTING
3.2. Budgeting and achievement of corporate goals
Budgeting in many firms is considered as a game to play and beat unfortunately. Any
positive variances in the budgets are set to be discouraged by performance systems and rather
than concentrating on overall performance of firms, it accounts for functional performance.
Budgets prepared by logistics organization are not any exception to such inefficiencies. It is
constantly reminded by logistics managers that the costs contained in the budget should be
minimized whilst increasing the level of services provided. Accomplishment of increasing
service level and reducing costs are done up to some point of time after which there might be
failure of logistics system resulting from successive attempts to achieve these outcomes.
Accomplishment of such goals within the budget is not linked with the corporate objectives
or goals. Hence, there is requirement of control and planning system that would facilitate
process management requirement in improving quality. Budgets serve as a mean of
coordinating and achieving plans and action of organization when they are effectively utilized
within the framework of effective and predetermined control (Hofmann & Bosshard, 2017).
Findings generated using some information extracted from other research work
indicates that budgetary control is considered to be of highly importance in making
managerial decisions. The decision making of organization in regard to performance
indicators is also influenced by budgetary control system. However, implication of budgetary
control has been criticized by conclusion of some other research work or article analyzed.
3.3. Performance measurement of logistics using budgetary system:
The performance and productivity of warehousing, transportation and inventories are
measured in four separate stages. Budgetary variances in transportation and service are done
by comparing analysis of actual cost versus budgeted cost. This would further assist in
highlighting the reasons associated with budgetary variances. For warehouse activities, there

MANAGERIAL ACCOUNTING
is introduction of activity budgets and physical measures. Introduction of phased activity
budgets is possible with the identification of data on physical units such as warehouse labor,
warehouse labor hours and non labor costs. Evaluation of tradeoffs across warehouse
activities is done by incorporating the use of measures of budgeted performance. Different
stages in the performance measures of different activities are done using a formal budgeting
system across logistics (Noreen et al., 2014).
4. Case analysis:
The analysis of budgeting system has been done for Aramex that is the leading global
provider of transportation solutions and comprehensive logistics. The detailed budget and
forecasted calculations form the basis of impairment computation of organization. Such
budgetary calculations are done for over a period of five years and the transaction volume are
based on individual cash generating unit budgeted performance (Aramex.com, 2018). The
evidences for logistic organization to implement adaptive control and flexible budget in their
budgetary process are gathered from multiple sources. Data collection regarding the
appropriate use of budgeting system has been strengthened using different sources. This
research paper has accounted for secondary data where conclusion and findings from case
study and research work has been found to be convincing and accurate.
One of the useful and common methods of logistic management control that is used
by Logistics Company is flexible budget which varies which change in level of activity.
Under such budgeting system, the components of variable and fixed costs are identified
separately and the actual operating level is computed using planned level of expenditure. The
budget prepared are compared with actual expenditures and the analysis of resulting variance
or differences is done for determining the differences between actual and planned
performances whether it was due to inefficiencies or efficiency of activities, changes in

MANAGERIAL ACCOUNTING
product mix and differences in cost or price (Lukinskiy & Dobromirov, 2016). In addition to
this, organization are provided with the most effective method of controlling by the standard
that is used a part of flexible budgeting system. Determination of standard costs based on
historical or predetermined costs where the analysis of work and operations are done for
determining reasonable and efficient operating rates for a given tasks (Epure, 2016). It is
difficult to determine standard for distribution activities because of casual and complex
relationship of such activities.
It has been suggested by some authors that responding to change by projecting the
possible future system should be the focus of logistic control. An organization such as
Aramex operating in logistic and service delivery sector can accomplish this to some extent
through flexible budgeting and separately projecting variable and fixed costs (Nilsson et al.,
2017). Nevertheless, in some scenario, flexible budget might respond inadequately. It should
be the focus of organization to implement the adaptive control that enables management to
make comparison with the planned future. The reason for adapting adaptive control is
attributable to the fact that it takes into account possible future considerations rather than
assuming continuation of past that helps in guiding decisions and planning to responses
(Ahmadian et al., 2015). In addition to this, organization can also implement budgeting
practices such as zero based budgeting and activity based budget.
5. Discussion:
This particular section demonstrates the comparison of analysis of literature review
and the findings and proposed analysis of given case study. Literature review analysis by
reviewing articles and research work has generated different results. Some studies has evident
that alternative methods of budgeting is viable because it helps in generating solutions to
common problems that are identified in the traditional or annual fixed budgeting system.

MANAGERIAL ACCOUNTING
Moreover, company takes little efforts in moving away from traditional budgets to advance or
alternative budgetary methods. Implementation of alternative budgetary methods on other
hand does not provide with standardized solutions to budgetary problems faced by
organization. Many advanced companies relies on adoption of alternative budgets system to
deal with the shortcomings annual fixed budgets (Houe & Murphy, 2017).
The proposed approach identified in the case analysis provides considerable
information about flexible budget and its importance in logistics management control. It has
been found that the most effective part of management control is setting standards that form a
part of flexible budgeting system. Adaptive control is another approach that should be
implemented by Logistics Company which forms a focus of locus control. When controlling
logistics activities, the common problem that has been cited is information availability.
Logistical controllership is faced with the challenge concerning requirement of data that
results in consistent measurement and performance information (Fry & Fiedler, 2014).
Business in the growing competition due to continuing global recession has
pressurized organization to implement simple and incremental method of cost cutting. It has
been examined that organizations would be able to make fundamental choice about
deployment of resources in the business objective pursuits by using a holistic approach of
zero based budgeting. Logistics and transportation companies would be able to achieve
sustainable and meaningful cost reduction by pursuing this particular approach to budgeting
(Bühler et al., 2016). In wide range of business circumstances, the approach is regarded as
pragmatic, particle and applicable.
Therefore, it can be inferred from the comparison of case analysis and analysis
presented by literature review that former takes into account specific budgeting practices that

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are suitable to the logistics and transportation organization and former provides with a mixed
view regarding traditional and alternative budgetary practices (Kim et al., 2017).
6. Conclusion:
The research paper contributes to literature and managerial accounting knowledge and
literature analysis is devoted to budgeting and thereby providing theoretical significance.
Some specific budgeting problems due to traditional budgeting methods have been pointed
out by surveys, theoretical researches and case studies. Contradictory findings are generated
from budgeting study and the differences in budgeting system and its significance is due to
inherent factors such as culture of organization and inevitable influences. A positive
relationship was found between decision making, performance management and budgetary
control, organization should uphold the appropriate system of budgetary control. Therefore,
organization should not abandon the traditional budgeting system altogether and for this
purpose, they should implement the appropriate budgeting methods. For planning the
financial of organizations, every organization needs to take into account their unique
requirements. One of the common aspects of logistics management is the control process and
logistic activities are difficult to control. The differentiation between logistics orientation and
other functions of organization is the reason attributable to such problem. Therefore,
organization should design own combination of management tools using budgeting
techniques.

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.
7. References list:
Ahmadian, F. A., Akbarnezhad, A., Rashidi, T. H., & Waller, S. T. (2015). Accounting for
transport times in planning off-site shipment of construction materials. Journal of
Construction Engineering and Management, 142(1), 04015050.
Ansari, S., Başdere, M., Li, X., Ouyang, Y., & Smilowitz, K. (2017). Advancements in
continuous approximation models for logistics and transportation systems: 1996–
2016. Transportation Research Part B: Methodological.
Aramex.com. (2018). Retrieved 8 August 2018, from https://www.aramex.com/docs/default-
source/default-document-library/annual-report-2016--en.pdf
Bhimani, A., Dai, N. T., Sivabalan, P., & Tang, G. (2017). How do enterprises respond to a
managerial accounting performance measure mandated by the state?. Journal of
Management Accounting Research.
Bühler, A., Wallenburg, C. M., & Wieland, A. (2016). Accounting for external turbulence of
logistics organizations via performance measurement systems. Supply Chain
Management: An International Journal, 21(6), 694-708.
Burns, M. G. (2015). Logistics and Transportation Security: A Strategic, Tactical, and
Operational Guide to Resilience. CRC Press.
Butler, S. A., & Ghosh, D. (2015). Individual differences in managerial accounting
judgments and decision making. The British Accounting Review, 47(1), 33-45.
Epure, M. (2016). Benchmarking for routines and organizational knowledge: a managerial
accounting approach with performance feedback. Journal of Productivity
Analysis, 46(1), 87-107.