I.The nature and purpose of the budgeting process to the company’s Director3
1.Definition of budgeting process3
2.Purposes of budget3
3.Budgeting process’s steps4
4.Types of budgets6
II.Appropriate budgeting methods and its needs for The Enterprise Company7
1.Zero-based budgeting method7
2.Incremental budgeting method8
3.Flexible budgeting method10
4.Static (master) budget method10
5.Suggesting comfortable budgeting method for The Enterprise Company11
III.Relevant budgets for the year 201111
IV.The principle of quality and value and methods to reduce cost and potential improvement for The Enterprise Company17
1.Principle of quality and value17
2.Method to reduce costs and potential improvement for Enterprise Company18
The Enterprise Company manufactures two kinds of product known as A and S. As a Management Accountant of the Enterprise Company, I will compile a report covering following issue: 1. The nature and purpose of the budgeting process to the company’s directors. 2. Select appropriate budgeting method and its needs for the Enterprise Company. 3. Prepare all the relevant budgets for the year 2011.
4. The principle of quality and value to the company’s Board of directors and methods to reduce costs and identify areas of potential improvement. *
The nature and purpose of the budgeting process to the company’s Director Definition of budgeting process
According to Management Accounting book, a budget is defined as “a quantitative statement, for a defined period of time, which may include planned revenues, expenses, assets, liabilities and cash flow.” (BPP Professional Education, 2004). It means that is a financial document used to project future income and expenses. Based on the accounting of revenue and expenses, the budgeting process may be carried out by companies to estimate whether the company can continue to operate. It helps a business allocate resources, evaluate performance, and formulate plans. In another word, a budget is a plan that outlines an organization's financial and operational goals. The basic process of planning a budget involves listing the business's fixed and variable costs on a monthly basis and then deciding on an allocation of funds to reflect the business's goals. There are several types of budget. Using different type estimates each specific area of operation. For example, a cash flow budget, for instance, projects company business's cash inflows and outflows over a certain period of time. Predicting company business's ability to take in more cash than it pays out is the main objective of it. And if the company is planning on starting a business or wants to maintain as well as improve its business, planning a budget plays an important role in determining its start-up and operating costs. Purposes of budget
Business budgeting is a basic and essential process that allows businesses to attain many goals in one course of action. There are several goals that many businesses seek to achieve (or should be trying to work toward) when they create and implement a budget. These goals include control and evaluation, planning, communication, and motivation. Based on those goals, these below benefits of budget are divided: * Ensuring that the company’s objectives will be achieved within a timescale. * Forcing the director or management of company to make plans for achieving the company’s objectives in general and department’s goal in particular. * Making the basis for the activities of different departments to be co-ordinated * Managers of each budget centres will be required for the responsibilities of getting the goals. * Setting up a control system.
* Improving the performance of the employees.
* Control and Evaluation
A budget also gives a company a benchmark by which to evaluate...