IM 15.1 Intermediate
a) The objectives of budgetary planning and control system
1) To combine the ideas of all levels of management in the preparation of a budget. 2) To coordinate all the activities of the business so that each is part of an integral total. 3) To centralized control for example to control each function so that the best possible results may b obtained. 4) To decentralizes (delegate) responsibility to each manager involved. 5) To act as a guide for management decision when unforeseeable conditions affect the budget. 6) To plan and control income and expenditure so that maximum profitability is achieved. 7) To ensure that sufficient working capital is available for the efficient operation of the business. 8) To provide a yardstick against which actual results can be compared. 9) To show management where action is needed to remedy a situation.
b) The organization required for the preparation of a master budget
1) The budget committee
It consists of high-level executives who represent the major segment of the business. Every part of the organization should be represented on the committee i.e. there should be a representative from sales, production, marketing and etc. Its major task is to ensure that budget are realistically established and that they are coordinated satisfactorily. The budget committee should appoint a budget officer, who will normally be the accountant. The role of budget officer is to coordinate the individuals’ budgets into a budget for a whole organization.
2) Accounting staff
The accounting staff will assist managers in the preparation of their budgets; they will, for example, circulate and advise on the instructions about budget preparation, provide information that may be useful for preparing the present budget, and ensure the managers submit their budgets on time. The accounting staffs do not determine the content of the various budgets, but they do provide a valuable advisory and clerical service for the managers.
3) Budget manual
The budget manual should be prepared by accountant. It will describe the objectives and procedures involved in the budgeting process a will provide a useful reference source for managers responsible for budget preparation. It also will include a timetable specifying the order in which the budgets should be prepared and the dates when they should be presented to the budget committee.
IM 15.2 Intermediate.
The preparation of budgets is a lengthy process which requires great care if the ultimate master budget is to be useful for the purpose of management control within an organization. You are required to:
a) identify and explain briefly the stages involved in the preparation of budgets identifying separately the roles of managers and the budget committee 1) Communicating details of budget policy
The long-range plan is the starting point for the preparation of annual budget. Top management must communicate the policy effects of the long-term to those responsible for preparing the current year’s budgets such as planned changes in sales mix, or the expansion or contraction of certain activities. Important guidelines also should be specified such as the allowances that are to be made for price and wage increases, or the expected changes in productivity.
2) Determining the factor that restricts performance.
There might be some factor that restricts performance for a given period. Prior to the preparation of the budgets, it is necessary for top management to determine the factor that restricts performance, since this factor determines the point at which the annual budgeting process should begin.
3) Preparation of the sales budget.
The sales budget is the most important plan in the budgeting...
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