The Needs and Benefits of Budgetary Control for Allocated Department - Assignment Example

Cost center 5 The allocated budget using electronic deliverable department : Best & Best Trading Pty Ltd Cost Centre 5 : Delivery Department Reporting Period : 4th quarter 2015 Items Budgeted ($) Actual ($) Variance ($) Variance (%) F/U Petrol 24,000 32,350 8,350 35% U Repair & maintenance 8,000 10,120 2,120 27% U Direct wages 60,000 65,444 5,444 9% U Overtime wages 6,000 7,677 1,677 28% U Printing & stationary 2,400 2,300 -100 -4% F Toll fees 1,000 1,250 250 25% U Total 101400 119141 17,741 17% U 2. Budgetary processes to monitor actual expenditure against budgeted cost across the work team To monitor as well as report against internal budgets on a steady as well as normal basis, the budget committee will ensure that a revision of the internal budget through a coordinated procedure is followed as well as making a forecast in order to control variance between the budgets estimates and actual results so as to identify very fast, and respond to changes in the external environment or internal activities[Cla081]. An appraisal as well as improvement of internal budget processes by monitoring the correctness as well as appropriateness of budget processes to recognize areas of improvement will be another plans that needed to taken into consideration. To appraise the budget performance, budget must be monitored to the extent to which the estimates match the actual results. This is important since it guarantees financial control as well as recognize where changes need to be made. Efficient monitoring of budget performance commands that managers be supplied with appropriate, timely as well as precise information to their level of accountability. It commands managers to provide response on time concerning the ceases as well as effects of budget variances and the planned actions to manage the variations[Mau03]. Budget is vital decision tool that every deliverable department places reliance on in its daily operation from one financial year to another. A budget provides estimates that a deliverable department plans to spend on as well as the source of income. This estimate act as guiding tool to the deliverable department since it ensures that the business stay within it planned estimates or in case of variance since it is hard to provide an accurate budget forecast, the variance should be favorable or reasonable, the deliverable department spends only on relevant cost and investment on planned source of revenue with strict collection period, the business will remain valid in the market hence its going concern assumption will not be compromised[Cha101]. Budget act as a controlling and decision making tool since, it provide managers with critical investment decision as well as the reality of the spending. This will ensure that the business will only spend on that project that will generate positive return in form of profit to the business and within a short period. The investment decision will therefore ensure that the business does not spend too much on ventures that do not provide positive returns within the anticipate timeframe. A good investment should therefore provide a cash flow inflow within a short period of time in order to sustain the business operation of the business by financing the working capital as well as meeting the daily operating cost[Dav15]. 3. The needs and benefits of budgetary control for your allocated department 1. Enhanced efficiency: Budget control ensures that there is an efficient approach of controlling the cost as well as getting rid of waste. It encourages economy as well as effectiveness. The budget control will lead to coordination between departments which encourage effectiveness of budget planning and controlling, since, problems identified in a department will be corrected at the time of budget implement. Budget aids managers to integrate individual efforts within the department towards common objectives. By precisely embezzling sufficient budgets to diverse activates within the department, every activities might be harmonized and entire efforts might coordinated to attain the department gaps[Cra14]. Budget act as controlling too to correct any variations. Where the expense for the department surpasses the assigned budget at any point in time, this will signify a variance which would require focus as well as appropriate actions. In this regards, budget controls aids in appraising the performance of the department, because of budget quantification, the appraisals of performance turns to be more objective in nature hence removing prejudices that may be realized due to subjective appraisal[Don13]. 2. Proper communication: Budget is prepared while considering the feedback information provided by the lower level management. Each division frames its own financial estimates in discussion with the department staff. Each as a results, it makes two way communication in the deliverable department. The budget control process encourages the management to shift the focus to the future operations. Because budget is part of the planning process, they pressure managers to antedate as well as forecast the trends and changes in the external environment[Gre12]. 3. Control: Budget ensure that the management exceptional. The evaluation of actual and budgeted results depicts the weak areas in which management must focus on. In this regards, the budget control is important. Budgets enable communications throughout the department. It is a blueprint for the department’s plans of operations as well as may be just be coordinated through correct communication at every levels and the budget are important to the low level managers who are accountable for executing the budget and the plans. These ensure that lower level managers understand how the operations connect to other department which would lead to enhanced communication, reduction of risk of failure due to miscommunication. 4. Co-ordination: Budget control encourages condition between divisions. It provides centralized regulation of diversified operations, the budget committee acts as coordinator of production. The sales and the other divisions. Budget control will encourage smooth coordination between departments which makes it simple form the budget committee to control budget. The benefit is that it wills leads to budget achievability with small variations[Wil99]. 5. Delegation of authority: Budget control promotions allegations of Authority, it fixes the boundaries within which delegated authority might be employed. Subordinate as well as executives might practice initiatives as well as judgment within the budgetary boundaries. 4. Analyze and identify cost variances for each cost items of your allocated budget Petrol Form the variance analysis, it can be observed that deliverable department overspend the budget for petrol and thus depicting an excess of $ 8350 Repair and Maintenance the repairs and maintenance is overspend by $2120 which is implies that the variance is unfavorable. The deliverable department spent more than it had budget for. Direct wages the budged budges is less than then actual value of wages. The variance for direct wages is $5444 which depicts a 9% growth rate as compared to the budget value. Hence the variance is unfavorable. Overtime wags The deliverable department overtimes wages is excess of what it had planned for. It can be depicted that the variance is unfavorable with a variance of $1677 signaling a 28% growth rate in variations. Printing and stationary This is the only budget that is favorable. The deliverable department actual expenditure is less than the budgets estimates which is an indication that the deliverable department variance is favorable. Toll fees The toll fess was under budget since; the actual result is more than the budget estimates. The variation is $ 1250 5. Contingency plan to maintain the delivery department financial objectives. Contingency Plan deliverable department name: Delivery department Person developing the plan: Name Position   Risk identified: Inefficiency Strategies/activities to minimize the risk By when By whom To stop breakdown of Machines, the department need to lease them As from the following financial period The General operation manager To minimize the Changes in Price and Cost of input, the department need to ensure that goods are bought in bulk as well as making contractual plan Adjusting the inventory at the start of the month The Operations General Manager To minimize the effect of Security Breaches, the accountant need to ensure that there is effective internal control in terms of secrecy and security within the delivery department. Any time the accountant feels that the internal control system is weak The senior accountant Risk identified: Workers underperformance To improve the workers standards performance in the delivery department, there must exist motivation At the time of delivery and supply operations with this department The production manager To reduce the risk of scarcity of personnel, the human resource need to ensure that flexibility of casual labor exist. Anytime when there is need of more casual laborers in the delivery department The Hr. manager To reduced underperformance, workers need to be encourage by giving them incentives and salaries packages Any time during business Operation The CFO and Senior accountant respectively 6. Relevant reports or documentations necessary to be accessed and produced while analyzing the budgets or making decisions for delivery department. Variance reports This report is an important report since, it will provide an understanding of the variations between actual and budgeted results and proving the options of whether the variation is favroa8uble or unfavorable. The implication is that it will help the manager in making informed investment decision as far as the budget estimates and correctness is concerned[Rut09]. Annual report The annual report is an important report since; it will provide the basis for appraising the deliverable department performance in order to identify the relevance of the actual results as compared to the budget estimates. Annual report both for the [previous financial period and the current financial period will ensure that decision is reached as to the reasons for the variations in the budget and the actual results for the current financial periods[Wil99]. Budget estimates Budget estimates provides a basis for understanding why the budget committee concluded on the financial estimates and the reasons that lead to growth in unfavorable estimates. Budget estimates will be used to make an evaluation with the actual results in order tom understand the reasons that lead to big variations and coming up with a decision of the budget achievability for the delivery departments. 7. How to priorities analysis in order to focus on key issues and make recommendations that reflect the strategies direction of delivery department. I will ensure that there’s strategic management plan instituted in the delivery department. The importance of strategic department is that, it will ensure that the key issues are handled with causes and recommendation proved. Strategic planning establishes where the delivery department is going, how it is going to get the destination a well as how it will understand it got there[Rog10]. The center of a strategic planning is normally on the whole organization, whilst focus of a business plan is normally on a specific product, service or plan. The Importance of strategic planning for the department is that, it will have a clear plan that serve variety of purpose in the delivery department inclusive of define aims of the department as we’ll as to determine achievable goals and objectives consistent with the mission of the deliverable department. The strategic planning process will ensure that the goals and objective of the department is communicated and a sense of ownership being developed from the pan. In this arrears, the department will capitalize on its resources on the key priorities as well as providing the basis for which the progress might be appraised and department's an approach for informed transformations when required[Wil99]. 8. Provide complete and constructive recommendations to improve the budgetary process and position The main issue of concern is why and how to minimize the variation in actual result for 2015. From the above budget analysis, it can be observed that the there is a lot of unfavorable variance. This depicts a risky situation for the business and thus an improvement in budget forecast is mandatory. The department need to revise its expense and cuts all the unnecessary expense in order to ensure that the cost is minimized and managed. The department must therefore ensure that there is proper budget estimates. This is made possible by understanding the past financial performance as well as the current business situation in order to provide a basis of forecasting for future business performance[Bel10]. The main issue that is of concern to the deliverable department is therefore the improper costing and expense controls. From the above budget analysis, it can be observed that there is a big variation with the actual figures. As a result, some modification need to be made in order to ensure that variance between the actual and budgeted values is less. In this regards, the budget forecast should on the basis on previous performance as well as other external factors such as the effect of inflation and level of competition must be factored in in order to ensure that the standard error of the forecast is minimal. Also the deliverable department must ensure that all the budget preparation procedure is strictly followed with an effective internal control[Wil99]. The opportunity to improve the business operation is to forecast on wide market coverage, as well as target market. The department as well as need to review its workers skills levels well as ensure that the budget forecast committee are qualified personnel with effective communication with finance department and other division in order to ensure that all the relevant information is collected and analyzed so as to provide a reliable forecast with least standard error. In this regards, the variation between the actual and budgeted forecast is minimal. This is because, good budget forecast determine the future of the business the business in terms of the going concern assumptions[Don13]. 9. Corrective actions are recommended to be implemented to ensure improved budgetary 1. Decouple the success of the budget from the compensation process Budget is concerned with resource allotment as well as commands control. Forecast on the other hand might be competed with the use of financial models. These might rapidly rerun on a monthly basis. 3. Use external benchmarking to set cost control targets This gets rids of negotiating enhancement over the past years as well as creates achievable targets that consider the enhancement that is made by competition. 4. Set direction using both financial and non-financial performance measures Because the financial targets are very simply to influence, enhancing the financial position might be executed in the short term by minimizing the service level as well as effectiveness. 5. Build clear connection between the key non-financial activities and subsequent financial performance and control the change in these connections Many budget enhancements are provided by shaving expense from individual lines of the budget devoid of any thoughts of physical effect of the changes. Nevertheless, where a comprehension of procedure capacity employing statistical model control techniques is created, we may judge with justifiable inevitability what the performance of the department will turn out to be. Connecting the activities, enhancement plans as well as the financial plans enables improvement to be trailed as well as budgets correctly authenticated[Joh08]. 6. Differentiate running costs from investments This might be depicted as apparent comment as well as fundamental concept for practitioners, but many department turn down the fact that to be competitive the department need to make extreme efforts to ensure that with main the rising competition level. Unfortunately, when budget turns to be tight, the discretionary cost is reduced. Department might perceive it profit and lose their competitive edge as well as the approach adopted by other rivals, it to ensure that diverse kind of venture explicit is made in order to ensure that they can be trailed and control; Reference list Cla081: , (Borio, 2008), Mau03: , (Burton, 2003), Cha101: , (Dahlquist, 2015), Dav15: , (David, 2015), Cra14: , (Deegan, 2014), Don13: , (Deventer, 2013), Gre12: , (Gregoriou, 2012), Wil99: , (Hunter, 1999), Rut09: , (McEwen, 2009), Rog10: , (Hussey, 2015), Bel10: , (‎Marian, 2010), Joh08: , (John B. Caouette, 2008), . Read More