Describe your question and rBudget and Behavior Implications
An effective budget converts the goal and objectives of management into specific performance
targets. The master budget serves as a blueprint that reflect management â??s plan for the budgeted
period . Moreover the master budget serves as a basis for control in that performance can be evaluated by competing actual results to budgeted or planned results.
Given the importance of budgeting with in a company , the creation of a effective budget is essential for the succeed operation of the company. There are several methods of generating budget information that can be employed , all of which require extensive contact with people ar various operating level within the company . The way in whixh people see their involvement with the budget process is important to the successful use of the budgetas a management tool .
In the budget setting process, budget A was putting together by lower management, including sales representatives , purchasing managers, and factory supervisors, budget B was put together by senior management.
Unit sales 10.000 15,000
Dollar sales $ 2,000,000 $3,000,000
Less variable expenses
Direct material $1,100,000 $1,500,000
Direct Labor 220,000 300,000
Variable Overhead 110,000 150,000
Variable selling administrative expense 88,000 120,000
Total Variable expenses $1,518,000 $2,070,000
Less fixes expense:
Manufacturing overhead 350,000 300,000
Selling and Administration 200,000 $200,000
Taxes and interest 10,000 10,000
Total fixed expenses $ 560,000 $ 510,000
Net income (loss) $ 78,000 $ 420,000
A. Calulate the cost per unit for the variable cost
B. Why do you think budget A has a high cost and low sale forecast?
C. Why do you think budget B has low cost and hign sales forecast? What are the behavior implication of this top down approach?
D. How should the two groups participate to come to a consensus or the budget? What are the advantages of this approach?
Budget A 151.8 (1518000/10000)
Budget B 138 (2070000/15000) total variable cost diveded but number of units produced
B. Budget A included lower level managagement and sales staff to make the budget. Top down budgeting generally does produce a smaller budget. Lower managment lacks the knowledge that comes with experience. They are usually not involved in negotiations with suppliers. Thanks to moder legislation (Sarbanes Oxley Act 200) senior management is held accountable by the federal government with steep penalties when it comes to internal controls, particularly where financial transactions are ...
Forcasting and calculation of variable costs