Strategic management accounting

Strategic management accounting

Strategic management accounting

Question 1

Budgeting

In every organization, budgeting is also known as annual or yearly process of planning, and it is structure to assist the managers to the future operations of the business. The budget helps business to identify that what company needs to expense out for generation of revenues, also what are the sales projected by the business and how much the company will be earning in the form of profit from its objective of revenues. However it is notable that, there are various businesses, in which budgeting system is implemented from various years, the results generated by them is not efficient and effective (Rajasekaran & Lalitha, 2011, pp. 547-550).

Traditional approach for budgeting

The traditional approach for budgeting is mostly depends upon bottom to up and top to bottom budgeting methods. In top to bottom budgeting method, the management of the business sets the goal of the business for entire year and then transmits it to the bottom line of command. On the other hand in bottom to up budgeting method, various department managers construct a budgeting of their department for which they are responsible and then provide their budget to the top management to combine all departments budget into one budget of entire business. However, there are some limitations in traditional approaches of budgeting. Which are discussed later in the assignment (Hansen & Moven, 2011, pp. 384-390).

Unrealistic objectives

The first limitation of traditional approach to budgeting is, when management sets the goal which consists of particular targets for growth and also assistance for controlling expenses. For instance the business might have set a goal for revenues to increase by 15 percent in specific year and set objective to reduce the cost of operation by 7 percent. If the top management of the business does not ask for input from the managers and supervisors those are main factors for achieving such results, these types of goals and objective are more likely considered as illogical, unrealistic, unfair and not achievable by the managers of lower level (Crosson & Needles, 2011, pp. 252-258).

Not inclusive

Another disadvantage of traditional approaches to budgeting is that in the bottom to up budgeting approach might include the management personnel for preparation of budgeting and contributor to the departmental budget, and the other employees that are below such level are not included in the process of budget preparation. It is important to take input from those employees as they often poses importance for contributing in the budgeting plan which is more realistic and achievable in nature. For instance the sales personnel might have the information for particular product whose sales might be declining in future for decreased customer's interest, and by this information management can effectively develop a plan which is more realistic and achievable (Montana & Charnov, 2000, pp. 288-292).

Trend of budget is always upwards

It is found that in preparation of traditional budgeting the trend of the budget is always upwards. The trend of the budget is always incremental as the mangers ...