Budget analysis of RDBS Corporation - Essay Example

?Table of Content Introduction ……………………………………………………………….. 2 Discussion, analysis and argument ……………………………………….. 2 Conclusion and Recommendation ………………………………………... 6 Appendix ………………………………………………………………….. 7 Management Accounting Introduction: A budget is a manuscript that translates plans into money. It is a financial plan where the estimation of expenditure and revenue is done. The budget is an estimate, forecast about what you will need in fiscal terms to do your work. The budget is the most important tool in the business. It is almost impossible to run a business without having the budget. Budgeting is the process of preparing the budget, where the operational plans are the plans for real work. At the time of budget preparation, trade-offs and prioritization with program are ought to be made to make sure that the budget fits government policies and priorities. The cost effective variants which should be the best option for the organization must be selected. At last, the means of rising operational efficiency, which is effective, must be sought. None of these can be fulfilled unless financial constraints are built into the course from the starting. Budgeting is very responsible and difficult job. So, all the companies always depend on the experts in the field for preparing the budget. This study focused to the budget analysis of RDBS Corporation. Discussion, Analysis and Argument: Incremental Budgeting: Incremental budgeting is a budgeting method where the budget is organized using a preceding period’s budget or else actual performance as a foundation with incremental amounts added for the new budget period. In the incremental budgeting, the actual performance of the company in the last months is taken into consideration and appropriate changes will be made for better result in upcoming months. This budgeting method encourages the spending of money up to the budget. Benefits that can be Realized from a Budgetary Control System: Maximization of Profit: The budgetary control system has an aim at the maximization of profits of the project. To attain this objective, a suitable plan and co-ordination of various functions are to be conducted. There is appropriate control over a diverse capital and revenue expenditures. The available resources are put into the best uses. Co-Ordination: Better co-ordination always results better profits. The functioning of the various units and sectors is correctly co-ordinate as a result of budgetary control system. The co-ordination of different executives and subordinates is essential for attaining the targets as specified in budgets. Tool for Measuring Performance: By giving the specific aims to various departments, budgetary control acts as a tool for measuring performance of companies. The fixed targets are compared to actual achievements and deviations are taken into consideration. Economy: The setting up of expenses will be methodical and there will be optimum economy in spending. The money will be put to use on the best. The ultimate benefits will go to the nation and it will be a national profit. The national assets will be used cost-effectively and wastage will be reduced. Consciousness: The budgetary control system helps in creating budget consciousness among the employees. By setting up targets for the workers, the system tries to make the employees responsible towards their jobs. Every person knows what he is anticipated to do and he can do his work without any interruption. Reduces Costs: Now days, the business is so competitive and the role of budgetary control is significant. All the businessmen try to diminish the cost of manufacturing and rising sales. They will try to have those perfect mixtures of products where profitability is at the maximum. “The budget process consists of activities that encompass the development, implementation, and evaluation of a plan for the provision of services and capital assets. Several essential features characterize a good budget process. • Incorporates a long-term perspective • Establishes linkages to broad goals • Focuses budget decisions on results and outcomes • Involves and promotes effective communication with stakeholders, and • Provide incentives to government management and employees” (Budget Process 2004, p. 1). The budget procedure should achieve the following: • Recognize stakeholder concerns and issues. • Include stakeholders • Get stakeholder’s support on the whole budgeting procedure • Attain stakeholder’s receipt of decisions connected to services, goals and resource utilization • Report to stakeholders on resource and services use, and serve usually to improve the stakeholders’ vision of government. The significance of the aspect of the budget method cannot be overstated. Regular and frequent reporting is essential to provide responsibility, inform and educate the stakeholders, and recover their self-assurance in the government. Involvement and communication is a necessary part of every aspect of the budget process. The budget process contains of four wide principles that stem from the mission and definition previously explained. These values encompass a lot of functions that cut across an organization. They reflect the reality that expansion of a budget is a managerial and political process that also has technical and financial dimensions. Each of the values of the budget process contains elements that represent achievable outcomes. These elements assist to translate the directing values into action parts. Individual budgetary practices are derived from these essentials and it is a method to achieve the elements. The elements and principles give a structure to classify budgetary practices. Five Inherent Weaknesses of the Annual Budget Model: In the new highly competitive business world, the traditional annual budgeting system has undergone crucial scrutiny. There are some significant weaknesses found in the annual budgeting systems, they are Not Fit for the Purposes: It can be a barrier to new idea and innovation. Instead of making new treatments, managers are reduced to the fixed facts and figures. Inflexible discipline will be the final result and the frustrated minds can do nothing. Time, Cost & Resource: The next weakness of budgets is that they are utilizing excessive amount of time and energy. In spite of using the powerful computer networks and advanced software tools, budgeting is an extended and expensive procedure. Inflexible and Inaccurate: The changes may not communicated appropriately among managers and the budget figures give rise to another fault, an almost instant deviation between the figures budget managers use and those used by the business centre. Short-Term Focus: The budgeting system always has a short term focus trough the past data. The lack of long-term vision is widely discussed and approved by all the business experts. General Ledger Budgeting: Another major difficulty is that customary annual budgeting is based on the general ledger. The General Ledger is the warehouse for the basic monetary information of the corporation. That fundamental information is especially about direct revenue, direct expense and balance sheet amounts. Most of the managers who get occupied in the budget process usually only budget these amounts for the areas of their duty. Conclusion and Recommendation: This study focused on the budget analysis of the RDBS Corporation. RDBS Corporation creates a mixture of plastic products. The industry starts the annual budgeting method in late December, when the controlling director targets the whole pound sales and net income before taxes for the coming year. The characteristics of good budgeting clear that the budget method is not merely an exercise in balancing expenditures and revenues one year at a time, other than it is strategic in type, encompassing a multi-exercise in balancing expenditures and revenues one year at a time. A good budget method moves beyond the traditional idea of line item expenses control, providing flexibility and incentives to managers that can lead to enhance program effectiveness and efficiency. The mission of the budget process is to assist decision makers in creating informed choices regarding the provision of facilities and capital assets and to promote stakeholder involvement in the procedure. Involvement and communication with citizens and other stakeholders are emphasized. The wide quality of the budget mission permits issues to be addressed that have restricted the success of financial plan in the past. Budget is a financial statement, prepared and permitted prior to a defined period of time of the plan to be followed throughout that phase for the reason of attaining a given objective. It may contain income, expenditure and employment of capital. Following are the recommendation. Expand and consolidate the exports of the plastic RDBS. Increase the sector's exporting culture Enhance the number of jobs in the chain Increase the competitiveness of the production chain Introduce new sections in the exporting procedure Recycling of RDBS products. A critical part of the market failures in recycling consists of tools constraint in the recycling and separation of plastics components. Utilizing the reusable containers of RDBS Corporation. Give extra focus on the equipments and machines. Appendix: Sales budget of RDBS Corporation: Sales 22,000*$100 $2,200,000 Less cash discount 19,800 $2,200,000*.5*.01 from cash sales+ $2,219,800 $2,200,000*.5*.8*.01 from credit sales Note: .5+.8*.5 = .9. This signifies that 90% of the current sales that are collected in the present year and subject to the 1% cash discount. Collections of 2011: From 2011 sales Cash sales $2,200,000*.5*.99 $1,089,000 Credit sales $2,200,000*.5*.8*.99 871,200 Or $2,200,000*.9*.99 $1,960,200 From 2010 sales 20,000* $100*.5*.18 180,000 Total $2,140,200 Note: only 50% of 2010 sales were credit sales and only 18% of that quantity is collected in 2011. The additional 2% is budgeted as uncollectible. Reference List Budget Process. 2004. City of Lawndale. Available at [Accessed on 26 February 2012]. Read More