Budget Methodologies Annual/Master Budget The development Of an annual budget for a large corporation may take many months to complete. This is because the annual budget is made Lip of several different budgets, andsome budgets cannot be developed until other budgets have already been completed. For example, the sales budget will be the driving factor in determining how many units must be produced, and therefore the sales budget must be completed before the production budget can be completed. One of the most important things that can be done in the processof developing the budget is involving all of the correct people. As we have said, this is not a process to be undertaken exclusively by upper management during their board meetings. Lower-level managers need to be involved, because they actually know what is possible and what is not and whatresources are required to meet a specific level of activity. This method of participative budgeting has a number of benefits to the organization. There is much greater support and acceptance of the budget by all of the people who were involved in the process and therefore the employees are more motivated. In addition, the budget will be set by people who are actually involved in the process, thereby increasing the accuracy or realism of the budget. Similar in concept to participative budgeting is bottom-up budgeting. This is the system in which the budget is developed by starting at the lowest levels in the operations systems and building revenues and costs from there. Having said all of this, upper management still needs to be involved in the budgeting process. They will set the goals, establish the priorities and provide the necessarysupport to make sure the process is completed correctly. A budget manual details the budget process. One of the areas that must be included in the budget manual is the communication and distribution process. As one budget is completed, it must be sent to all of the departments whose budgets are based on that budget or which use the budgeted information in their own budgets. A planning calendar is the document that sets forth ail of the deadlines, policies and procedures of the budgeting process. By having a calendar like this, a firm greatly enhances its chances of having the budgeting system work as it is SLipposed to. Question 5: Which one of the following best describes the role of top management in the budgeting process? Top management: Should be involved only iri the approval process. Lacks the detailed knowledge of the daily operations and should limit their involvement. Needs to be involved, including using the budget process to communicate goals. Needs to separate the budgeting process and the business planning process into two separate processes. Question b: The budgeting process should be one that motivates managers and employees to work toward organizational goals. Which one of the following is least likely to motivate managers? Participation by subordinates in the budgetary process. Having top management set budget levels. Use of management by exception. Holding subordinates accountable for the items they control.
Posted on: Tue, 03 Sep 2013 03:39:58 +0000
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