Advantage And Disadvantage Of Fixed Budget Accounting Essay

Advantage And Disadvantage Of Fixed Budget Accounting actHowever from a birds- eye view, calculate squirt be delineate as a management tools that put the managers in control of a finical health of the plaque. The purpose of the figure is to measure of the monetary organize of the organisation and cipher is a tool that forces management to be responsible in a structured and objective way. How manager manage the figure is happen upon to their cling to. Budget facilities the planning and resources eachocation and help to estimate, itemised, analysis and examined the stainless harvest-home and service that organisation offers to customer. (Seer, 2000, p.187).Budgeting is a simple move of consolidating cypher and adhere them as closely as possible (Maitland,2000). It is a exploit turns manager attitudes forward looking to the future and planning managers ar fitted to anticipate and react accordingly to the potential problem before it arises. Budgeting process allows manager to focus on the opportunities instead of figuratively. The figure system provides sustainability to none process within an organisation. It is an ut intimately important process to the management. In opposite word by some researchers few air plan to part but many of those that collapsed failed to plan (Horngren, C. et al., 2000)The aim of computeing is to give management an psyche how well the organisation is projecting the income goals and how well the organisation managing the working capital. The work outing commit should able to increase the profit, reduce inappropriate expenses and it everywherely helps to expand the markets (Thomsett, 1988, p.5). To happen upon the figureing aim, the management needs to build a computeing system (Viscione , J. 1984).A budget system varies from organisation to organisation and it is not unitary apprehension. The fundamental concept of budget system involves estimating future execution of instrument of the organisation, comparing the actual performance to the budget and analysis the deviation of actual result against the budget. The ingredients that determining the grammatical case or style of an organisation depend on the type of organisation, the leading style, the method of expression and desired result (Cherrington Cherrington, 1973, p.226)In general budgeting can be categories into two primary categories (Cohen, J. et al., 1994) which ar operational budget and financial budgetOperational budget covers revenues and expenses which involve day to day magnetic core business of the organisation which is normal operation activities. The main elements of the organisation operational budget include sales, production, inventory, materials, labours, overheads and R and D budgets.Financial budget controls the organisation financial aspect of the business. These budgets disclose the influences of the operational budget on the organisation, financial position and potential revenues. Financial bu dget include cash budget, capital expenditures budget, balance sheet and income statement.thither be many available methods of budgeting atomic number 18 available and it is important for the management to settle the correct methods that suits the organisation. Generally, management choices on how to start preparing budget fall into one of three major approaches (Rasmussen, Eichorn, 2000, p.19) which are Top-Down, Bottom- up and Top-down/bottom up. Please refer to figure 1 for Top-down and Bottom-up approaches.Figure 1 Top-down versus Bottom-up approaches artificial lake Rasmussen, Eichorn, 2000, p.20-25Main BodyPart A (i)Budget approaches adapted by fall in Consultancy join Consultancy had presently adapted the approach of static budget while preparing the budgeting. Static Budget is also known as restore budget. Accordingly to Chartered Institute of Management Accountants of England, a persistent budget is a budget outline to remain unchanged irrespective of take of actual activities attained. A static budget leave behind reflect the expect result or revenues of a budgeting year (Hansen and Mowen, 2011) of a responsibility focus for one aim of activities. Normally doctor budget will be prepared in advance before the financial year as the live classified as dogged and it will not truly in direct proportion of the level of activities. Fixed budget approaches are widely adapted by service industry (Reeve and Warren, 2007) and partly by some administrative functions of manufacturing companies such as purchasing, engineering and news reporting. Fixed budget is employ as an effective tool of cost. If, the level of activities attained are varies from the budgeted activities then fixed budget become ineffective. Comparatively, fixed budget is sole(prenominal) suitable for fixed expenses. A fixed budget is appropriate under(a) static condition.Advantage and disadvantage of Fixed BudgetSmall business and service industries needs an overall budget to survive Fixed budget is about widely used by service and small industries as it help to track on control the spending. At the alike season fixed budget can cause more problems rather than great(p) a solution. A fixed budget will capitalised the calculation fixed expenses and help to forecast the bills to be paid by the business. For the variable expenses, fixed budget provides maximise spending limits and it helps to control the finances.The advantage of fixed budget is to help the business to prioritise the expenses. Fixed budget clearly property between the businesses needs and wants by forcing the business to remain consistent, it will also ensure that the bills are paid on time.The disadvantage of fixed budget as its operates to one level of application- the planned operation and it does not account for the business unpredictable military action. The actual always will be captured by a level of action which is significantly difference from the planned activity. For exa mple, to correspond the actual production cost increased at production levels of super C units against a standard based on planned activity of cholecalciferol units could be misleading. Management will mislead thinking into that the production be are out of control. An increase in production cost is avertible as volume increases and it does not means that there is problem on increase cost occurred.Hiring Consultant for Future budgeting for United ConsultancyA advisor is who has a position to have a certain level of influences over an individual, a group or an organisation but who has no coercive power to make or to adapt changes into the organisation. It is the employee of the organisation has the power to decide whether to accept and implement the changes into the organisation. The consultant brings specialised acquirements, knowledge, expertises or accessing certain cultivation into the organisation.Scott Hascall (2002) had analysed the advantage and disadvantages of co nsultants and United Consultancy need to consider before hiring consultants for involving in preparation of future budgets.Advantage of consultantsThe consultants are import and hired to fill talent gap in the organisation. According to Drucker (1979) suggested management consultant is an extraordinary and indeed a unique phenomenon as consultancy has the management skills, techniques, knowledge are go around learned through motion pictures to and invites with many industries as the typical executives lack of this contour of exposure. As Drucker notes, The executive works with same organisation or most with very few. Executives lack exposure and cannot gain it nor can be prepare it. Consultant will able to transform the organisation and gain the exposure at the same time will add significant value by reducing the problem resolution cycle time (Hagedorn, 1982). United Consultancy will be hiring consultant for preparation for future budget as it will bring new Idea, proficiency and impartiality objective (Gattiker and Larwood, 1985).Ifinedo (2011) had surveyed the impacting factor of consultants such as management, support, business, vision and external expertise. The result was found that all these factors influences the business system but the effect of external quality expertise was more important compared to the other factorsDisadvantage of consultantsAn organisation hiring a consultant to bring as it will bring the required expertise, knowledge and experience to the organisation. Accordingly to Kelly (1979) hiring external consultant will be expensive as the payment will be based on their specialised skill in the respective field compare to internal consultant. An external consultant will not available at the right time and not easily accessible to the organisation as the internal executives. At the same time, and they are lack knowledge of organisation culture and working environment. up to now consultants have the great level influences the senior management.A research by Norbck and kerblomMaster (2003) had highlighted that engagement of uncommitted management and inexperienced executives would lead to give an luck to consultants to take advantage of the situation and act to their benefit and attaining their own goals. There the experiences and capabilities of management consultants are critical for successful on management of consultants. hotshot of most important factor to take into account when hiring consultants was mentioned by Luo and Liberatore (2009) which examined consultants objective and goals. The organisation main objective is to improve the performances while the consultants other goals such as knowledge acquisition and business growth. To overcome the situation, the organisation moldiness well coordinate with consultants to achieve the desired goals.Part A (ii)United consultancy using Activity- based costing (ABC) for the allocation cost based fixed and varioable expenses. An effective planning of fixed and va riable cost as follows provision to determine the variable overhead activates that add value for customers using the product and serviceEffectively planning to use the cost number one woods in unalike level of activities.At the start of the fiscal year, a substantial ploughshare of fixed overhead are predetermined compare to variable. When the United Consultancy budget the fixed overhead cost, they should select the appropriate level of activity that will benefit the United Consultancy over long terms. This is a strategic decision.The key differences are how fixed costs are fixed to level activity and variable costs are allocated to level of activity. material Costing trite CostingFixed CostActual PricesActual inputs are usedStandard PricesStandard inputs allowed for actual outputVariable CostActual indirect rateActual inputs usedStandard variable cost allocation rate.Standard quality of cost allocation base allowed for actual output.Activity- based costing has involves the follo wing stageIdentify the level of activity that resources and cost to be associate.Identify the cost drivers linked level of activity. A cost driver is any factor that cause on drivers and activity cost.Calculate a cost rate per cost driver. Each activity should multiple cost driversAssign cost to products by multiplying the cost driver rate by volume of cost driver units consumed by the products.Indentify level of activity that resource is most engaging and challenging which based on activity based costing. A cost advantage rules that companies identify most important activity.Non Value added activities will be identified and these can be eliminated to improve the efficiency and profitability.Majority of the cost drivers are related every to the level of activity or the complexity of the production or trade process.