The Contingent Budget - Essay Example

 The important aspects will help finalize the budget by implementing the budget styles as well as developing alternative strategies and systems for delivering the business products. The last thing to draw is the budget. The other important aspect is obviously a report of the revenues thus expenditure of the past accounting periods in the industry (Kerzner 2003). The following are circumstances that may lead to the need of a contingent budget. An increase in the prices for raw material together with the inadequate productivity due to unused capacity causes an increase in the operating costs.

The stockout costs, lead time costs, and even reduced production leads to market loss. The inadequate capital or access to capital finances calls for unexpected costs. When the firm is operating a risk appetite policy, the ascertained costs will act as the contingent budget elements as well as determine the level of the contingency budget. The other instance is about labor and entrepreneurial factor inputs. When there is inadequate monitoring of the firm’s innovation and cash flow, as well as the inadequate labor, the firm unexpected costs such as labour turnover costs, high liquidity, and reduced production capacity rises.

Where there is technology advancement rendering existing technology obsolete, thus replacement costs have to be incurred, especially to maintain the competitive edge in the service industry. The main costs lie on the occurrence of immobility of some factors of production. Frederic & James (1983) laid out that some contingent costs are uncertain, but occurrence can be determined statistically thus contingent budgetingThe contingent budget runs on the best practices of budgeting, where thorough guidelines of budgeting form a basis for activity planning and timely reporting to responsible personnel.

The budget serves contingent costs and liabilities involving the whole organization. Using modern management practices makes the manager abandon the set budgets. This leads to a call for contingent budgets to play as well as adopt favourable operating grounds (Hope and Fraser 2003).