Analysis of Budgeting Techniques and Practices at MMP Organization

This report delves into the managerial accounting and budgeting practices of MMP, a rare metal products organization based in the UK. It highlights the purpose and importance of budgeting, emphasizing its role in forecasting, financial decision-making, and performance measurement. The report introduces various budgeting techniques employed by MMP, including zero-based, activity-based, and traditional methods, and analyzes their application across different divisions such as Birmingham head office, mining division, training division, Shenzhen division, research and development, and sales department. The report also discusses the limitations of traditional budgeting and proposes the 'beyond budgeting' technique as a more effective approach to overcome these challenges, offering divisions and departments greater flexibility in financial planning. Finally, the report concludes that budgeting is crucial for setting financial targets, but the 'beyond budgeting' technique may be a more suitable option to address the ineffectiveness of traditional practices.

Managerial accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
The purpose and importance of budgeting for MMP.............................................................1
Budgeting practices of different divisions..............................................................................2
Beyond budgeting technique for MMP..................................................................................3
CONCLUSION................................................................................................................................3
REFERENCES................................................................................................................................4

INTRODUCTION
Management accounting is the process of sourcing, measuring, analysing, information so
as to achieve the goals of the organization. The information that is used by management
accountants is not just related to finance (Barsky and Morris, 2016). All types of information are
used by them in order to develop a business plan and drive sustainable success.
MMP is an organization that deals with processing and selling of rare metal products.
The headquarter of this organization are located at UK.
This report will represent the purpose and importance of budgeting system for the MMP
organization. It will introduce the current budgeting practices that are used in the organization.
The purpose and importance of budgeting for MMP
Purpose of Budgeting
Budgeting system in the organization can be used for the forecasting of income and
expenditure as in the business planning process budgeting plays a very important part. The
prediction need to be made by the business owners and managers whether business will earn
profit or not (Smith, 2016). Budgeting will provide a model that might explain how the business
need to perform financially by carrying certain plans and strategies. The manager of the MMP
attempts to forecast income and expenditure during the construction of business plan. Budgeting
system can also be sued as a tool to provide financial framework for the decision making
process. To measure the performance of the business budgeting can also be used.
Importance of Budgeting
The detailed analysis related to the company's exception to invest money in future time period
can be done with the help of budgeting. The expected need of each department in a business is
outlined by MMP on the annual basis while creating budgets. The sue of annual budget will
reduce the time that is wasted by companies on creating and managing capital resources.
Budgeting will also help to make sure that capital is not wasted on the unwanted items (Sarraf
and Mohammadnazari, 2016).For business operations budgeting will help MMP to have a
financial roadmap. Previous years budgeting is reviewed by the company so as to follow the
guidelines .For the future growth and expansion also budgets are planned by the company. The
one of the most important tool that use used by the company to gain profit in a business is
business budgeting.
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Budgeting practices of different divisions
Zero Budgeting
It is a process of budgeting in which the entire expenses must be maintained for each new
period. From a “zero base” Zero-based budgeting gets start within an organization where every
function is evaluated for its wants and costs. For the coming time period budgets need to be
made (de Campos and Rodrigues, 2016).
Activity-based budgeting
To achieve greater transparency into the process of budgeting,Activity-based budgeting is
used by the organization. It searches for efficiencies in the business operations and based on
these activities it develops budget (Lim, Son and Lee, 2016).
Traditional budgeting
In this type of budgeting,previous year's budget is taken as a base. By making
modification to the last year's budget the current budget is prepared. The changes can be made in
the budget by adjusting the expenses based on customer demand,inflation rate etc. It will save a
lot of time as only the modification need to be done on the previous year's budget (Brunner and
Pradeau, 2017).
Different budgeting practices are used by MMP in various divisions in order to define
budget from the activities. In the Birmindham head office of MMP budget is decided based on
the outcomes of the last year. Hence, activity based budgeting method is use by it. There are
different division in the office such as, accounting, finance, IT, HR and marketing. These
functions prepare their own budget as per their findings.
 Mining division: Tazania and Kenya are responsible to hold mining division. It follows
traditional costing where only basic changes are considered which includes, local
inflation. It does not consider the need that may arise in the current year which may not
be present in the previous year. It may not be an accurate practice adopted by the division
as it may lead to variations in the prepared budget (Maroyi and van de r Poll, 2012).
 Training division: It is responsible to train the local staff with respect to mining.
Traditional budgeting technique is used by them as the whole budget depends on the cost
of previous year. People working in that division do not find it an appropriate technique
as there is as it nowadays it cost more to train an employee and the budget fall short for it.
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The company as also experienced an increase in workforce in comparison to the last 5
year which create a demand for more monetary funds.
 Shenzhen division: It is responsible for the whole functioning of the company. Activity
based budgeting technique is used as every functions cost is decided separately which
includes, office salaries, rent etc.
 Research and development: This area of the entity tends to follow zero budgeting
technique as the budget is decided based on income generated from different sources. The
expenditure will be zero if it has not generated any income (Rossi, 2014).
 Sales department: It used zero budget techniques as funds are decided based on the need
of marketing, advertising etc.
Beyond budgeting technique for MMP
Beyond budgeting technique refers to shifting to leadership philosophy technique which
is much more effective and helps to overcome the limitations been faced by the company due to
adoption of traditional techniques (Singh, Jain and Yadav, 2012). It is an effective technique to
re look on the areas that can be handled in better manner (What is beyond budgeting, 2014).
Since, the department are not satisfied with the budgeting practice, therefore, it will be a fruitful
activity for the entity. It will also leave the divisions and departments open to plan and go
beyond rigid planning of budgets.
CONCLUSION
Based on the above report, it can be concluded that, budgeting is an effective technique
that is used by the companies to set targets for its expenditure and income (Zhan and Reda,
2015). However, in MMP, people working in different divisions are not happy with the
technique followed by them as they fall short of the funds. Further, it can be inferred that,
beyond budgeting technique will be a suitable option for the entity in order to deal with the
ineffectiveness of traditional practices.
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REFERENCES
Books and Journals
Barsky, N. P. and Morris, J. T., 2016. Corporate Budgeting: Perceptions of a Next Generation of
Corporate Leaders. Management Accounting Quarterly. 17(4).
Brunner, R. and Pradeau, G., 2017. Public service reform and participatory budgeting: How can
Scotland learn from international evidence?.
de Campos, C. M. P. and Rodrigues, L. L., 2016. Budgeting Techniques: Incremental Based,
Performance Based, Activity Based, Zero Based, and Priority Based. Global
Encyclopedia of Public Administration, Public Policy, and Governance, pp.1-10.
Lim, I. H., Son, E. J. and Lee, M. J., 2016. A Study on the Long-term Repair Plan for Additional
Energy Saving Elements in Zero Energy Housing Complex. Journal of the architectural
institute of Korea planning & design. 32(2), pp.35-42.
Maroyi, V. and van de r Poll, H. M., 2012. A survey of capital budgeting techniques used by
listed mining companies in South Africa. African Journal of Business
Management. 6(32). p.9279.
Rossi, M., 2014. Capital budgeting in Europe: confronting theory with practice. International
Journal of Managerial and Financial Accounting. 6(4). pp.341-356.
Sarraf, F. and Mohammadnazari, R., 2016. Accrual Accounting and Budgeting. Journal of
Administrative Management, Education and Training. 12(2), pp.316-328.
Singh, S., Jain, P. K. and Yadav, S. S., 2012. Capital budgeting decisions: evidence from
India. Journal of Advances in Management Research. 9(1). pp.96-112.
Smith, G. A., 2016. Managing with Purpose: Integrating Assessment, Planning, and Budgeting.
Zhan, X. and Reda, S., 2015. Power budgeting techniques for data centers.IEEE Transactions on
Computers. 64(8). pp.2267-2278.
Online
What is beyond budgeting. 2014. [Online]. Available through <https://bbrt.org/what-is-beyond-
budgeting/>. [Accessed on 6th September 2017].
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