Boundaries Of Management Accounting Research

Types of Budgets

Discuss about the Boundaries Of Management Accounting Research.

	February	March	April	May Save Time On Research and Writing Hire a Pro to Write You a 100% Plagiarism-Free Paper. Get My Paper	June
No. of units Sold (A)	12000	12500	13000	14000	14000
Selling price per set (B)	$             24.00	$             24.00	$             24.00	$             24.00	$             24.00
Sales (A*B)	$ 2,88,000.00	$ 3,00,000.00	$ 3,12,000.00	$ 3,36,000.00	$ 3,36,000.00

	July	August	September
Collection in next month	$ 1,34,400.00	$ 1,48,800.00	$       1,53,600.00
Collection in second next month	$     67,200.00	$     67,200.00	$          74,400.00
Total Collection from Sales	$ 3,50,400.00	$ 3,69,600.00	$       4,00,800.00

	July	August	September
Sales	15500	16000	18000
Add: Closing Inventory	11600	8400	4800
Less: Opening Inventory	9900	11600	8400
No. of units to be produced	17200	12800	14400

	July	August	September
Raw Material consumption	17200	12800	14400
Add: Raw Material Closing Inventory	5120	5760	7680
Less: Raw Material opening Inventory	6880	5120	5760
Raw Material to be purchased	15440	13440	16320
Purchase Price	$               4.00	$               4.00	$               4.00
Direct Material Cost	$     61,760.00	$     53,760.00	$     65,280.00

	April	May	June	July	August	September
Opening Cash Balance	16800	-31599	65283	167764	304109	494175
Sales Collection	302400	319200	331200	350400	369600	400800
Less
Variable selling expenses	15600	16800	16800	18600	19200	21600
Administrative expenses	14767	14767	14767	14767	14767	14767
Factory overhead	52000	52000	52000	52000	52000	52000
Production labour cost	112000	92160	94720	110080	81920	92160
Purchase payment owning to last quarter	82000
purchase payment @20% in 2nd quarter	74432	46592	50432	18608	11648	12608
Total payments	350799	222319	228719	214055	179535	193135
Closing Cash Balance	-31599	65283	167764	304109	494175	701840

	July	August	September
Sales	$              3,72,000.00	$ 3,84,000.00	$ 4,32,000.00
Less: Variable cost
Direct Material	$                  61,760.00	$     53,760.00	$     65,280.00
Direct Wages	$              1,10,080.00	$     81,920.00	$     92,160.00
Variable Factory Overheads	$                  52,000.00	$     52,000.00	$     52,000.00
Variable selling expenses	$                  18,600.00	$     19,200.00	$     21,600.00
Variable Administrative expenses	$                    1,433.33	$     14,766.67	$     14,766.67
Contribution	$              1,28,126.67	$ 1,62,353.33	$ 1,86,193.33
Less: Fixed cost
Fixed factory overhead	$                  12,000.00	$     12,000.00	$     12,000.00
Fixed administrative overhead	$                  13,333.33	$     13,333.33	$     13,333.33
Fixed selling overhead	$                    5,066.67	$       5,066.67	$       5,066.67
Net Profit	$                  97,726.67	$ 1,31,953.33	$ 1,55,793.33

Finance is considered as the life blood of any business because in the absence of adequate amount of funds business cannot be operated smoothly. Due to this fact, every business organisation requires to undertake proper financial planning on a timely basis. Financial planning facilitates raising of funds and their optimal utilisation in the business so as to generate maximum wealth for the firm. Budgeting is the key process of financial planning. It is the comprehensive process of preparation of various kinds of budgets for the business or project of the firm. It involves estimation of expenses and incomes for a certain period of time in future. The reports and statements that are prepared as a part of budgeting are termed as budgets. Budgets are prepared taking into account all the possible receipts and payments to be occurred in the given period of time, whether they are of capital or revenue nature.

Budgets are the prepared before the commencement of any event or project so that it can be determined as to how much funds will be required in a particular time frame to undertake such event or project. Budgets are generally prepared in monetary terms. There are different types of budgets that any business organisation has to prepare. Such as Sales Budget, Purchases Budget, Production Budget, Cash Budget etc.

Hospitality business industry is a service industry and the hospitality business management is concerned with servicing the guest clients and satisfying them to create the wealth for the business. This industry includes different segments such as hotels and restaurants business, travel and tourism business, event management business etc. Generally but not always, the product that is purchased or consumed is either of intangible nature or the product’s perceived quality is mainly impacted by the method of service through which it is received. It is believed that the service provider itself is the part of product offered to the customers. In hospitality industry the quality of service is not only derived from its value in monetary terms but also from the level of respect that is offered by the service providers to them during the course of providing the services. To operate and manage the business of hospitality, an organisation has to undertake necessary strategic planning process. As a part of this strategic planning, it needs to carry out the budgeting function on time to time basis so that it can run its business successfully. Budgeting will facilitate determination of quantum of funds that will be required to run the business. The right availability of funds at the right time will enable the business managers of hospitality business to provide the quality services to their customers in the most efficient manner. Also, budgeting will allow the deployment of valuable resources of the entity to the areas from where maximum returns and customer satisfaction can be generated. Budgeting control system is the most important part of effective management of any organisation.

Financial Planning for the Hospitality Industry

There are various advantages of using budgetary control as the business management tool for the firm that is operating its business in the hospitality industry.

1. Facilitates better strategic planning:

The budgetary plan compels the employees of the organisation to work in the manner that will provide maximum benefits to the organisation. A formal budget plan will set the deadlines for the operational managers and the personnel working under them. These deadlines will therefore not allow the employees to divert their individual attention from daily business functions to their personal motives.

1. Budgeting provides the basis for performance evaluation:

As budget is the main aspect of control and review process of the organisation in a way that they enable the managers to set the targets and goals to be achieved by the company. The performance of the business is the monitored against these pre-determined targets set through budgeting process (Van der Stede, 2000). The targets are established not only for the organisation as a whole but also for the individual operations that are necessary for the business so that operational managers are directed and supervised to achieve the agreed targets and parameters. In a firm which is running and operating a chain of restaurants and hotel, the management accountant has to prepare the several budgets such as revenue budget, expenses budget, cash budget, raw material budget in the beginning of every year so that it can be well-determined that how much resources will be required to accomplish the desired goals  and targets (Zimmerman & Yahya-Zadeh, 2011). These budgets will also determine the amount of funds to be arranged from various sources so that the business does not have to fall short of finance when it requires such funds to provide excellent quality of the product and services. Thereafter, the performance of the overall firm and its different departments will be evaluated on the basis of the budgetary reports that are prepared by anticipating the possible revenues and expenses of the business.

1. Savings of excessive costs:

A budgetary control system of a firm dealing in hospitality business keeps it fit as it allows channelizing the valuable resources of the firm in those areas which are indispensable for providing the maximum satisfaction of its customers (Otley, 2001). If it is not planned in advanced as to how much funds and other resources are to be allocated to the particular operation or department, it may result into flow of excessive funds to the areas that are non-productive. This will ultimately increase the cost of operating the business. If a clear picture of certain level of expenses to be incurred and the revenues to be generated by each operational manager is not drawn through budgeting, they may perform their operations in the manner that creates their personal benefits at the cost of harming the true objectives of organisation as a whole (Horngren, 2009).

1. Better communication and coordination:

Advantages of Budgetary Control

The hospitality business, say for example, a hotel business requires numerous operations to be performed to operate the business effectively. Some of those operations are: catering operations, accommodation booking and room service operations, human resource operations etc. These operations are to be performed by each operational department to achieve the overall success of the hotel business of the firm (Hoque, 2002). In order to run the hotel business smoothly adequate coordination must be ensured among all these departments so as to harmonise their individual goals with the organisational goals. If proper communication of desired results is not done, then the firm will fail to achieve such objectives. Therefore, budgets are necessary to communicate the desired and expected targets of the organisation. They will identify the level at which each department should operate to achieve the objectives. The predetermined targets and goals established through budgetary statements will make it essential for the operational departments to coordinate with each other.

1. Improved results for future periods:

Budgetary reports cover the budgeted results of the budget period and hence it enables the management to conduct variance analysis. This variance analysis will help the management of the company to understand the root causes of deviations of actual results from the expected results so that suitable course of action could be taken for the further periods (Frow, Marginson & Ogden, 2010).

Though the budgets are said to be the basis on which the overall performance of the company depends, there are some limitations of budgeting process. They are as follows:

1. Budgets are coercive:

Yes it is true that budgeting process instils cost control in any business but at the same time it is an undeniable fact that an organisation can perform successfully when its management team and employees feels motivated about their work. Budgetary system does not let the management of the company entertain the ideas of the employees. Rather, they create pressure on the employees to work only as per the directions of their supervisors and budgeted plans. Therefore, budgetary system promotes the environment where employees do not feel motivated (Garrison, Noreen, Brewer & McGowan, 2010).

1. Budgets promote rigidity:

As the organisation has to function as per the requirements of the budgets, any changes in the business environment, whether internal or external, cannot be incorporated in the budget reports and hence it gets difficult for the management to cope up with the environmental changes.

1. Time consuming process:

The preparation of budgets involves huge time and even it requires requisite skills and knowledge of financial management as well as cost management. Therefore, it may not be feasible for the company to implement budgetary control system (Drury, 2013).

Conclusion:

From the above report, it can now be stated that in every business organisation budgetary control system is of the most importance. For any business belonging to hospitality industry, budgetary planning plays significant role in achieving its overall objectives and goals as such business has number of operations to be performed by it to service its customers in the best possible manner. Budgeting process enables the managers of the company to optimally utilise its valuable resources and achieve the target in the minimum possible time. Budget also supports effective undertaking of sound economic decisions for the business.

Reference:

DRURY, C.M., 2013. Management and cost accounting. Springer.

Frow, N., Marginson, D. and Ogden, S., 2010. “Continuous” budgeting: Reconciling budget flexibility with budgetary control. Accounting, Organizations and Society, 35(4), pp.444-461.

Garrison, R.H., Noreen, E.W., Brewer, P.C. and McGowan, A., 2010. Managerial accounting. Issues in Accounting Education, 25(4), pp.792-793.

Hoque, Z., 2002. Strategic management accounting. Spiro press.

Horngren, C.T., 2009. Cost accounting: A managerial emphasis, 13/e. Pearson Education India.

Horngren, C.T., Foster, G., Datar, S.M., Rajan, M., Ittner, C. and Baldwin, A.A., 2010. Cost accounting: A managerial emphasis. Issues in Accounting Education, 25(4), pp.789-790.

Otley, D., 2001. Extending the boundaries of management accounting research: developing systems for performance management. The British Accounting Review, 33(3), pp.243-261.

Van der Stede, W.A., 2000. The relationship between two consequences of budgetary controls: budgetary slack creation and managerial short-term orientation. Accounting, Organizations and Society, 25(6), pp.609-622.

Zimmerman, J.L. and Yahya-Zadeh, M., 2011. Accounting for decision making and control. Issues in Accounting Education, 26(1), pp.258-259.