strategic management accounting

Strategic management accounting

Strategic management accounting

Question 1

Introduction

Budgets are tools used for the purpose of planning and control in the business organizations. Budgets are used in business organizations not only for the purpose of monitoring the costs of the organization but also for the purpose of achieving the aims and objectives of the business organization. Budgets are also used to motivate the employees to work. The budget systems which are implemented in the business organizations of all types should encourage the convergence of goals of employees and that of the organization as a whole. The budgeting process involves the supervisors of the business organizations too in the process of goal convergence. There have been many budgetary control systems developed to meet the specific needs of the business organizations and the environment in which they operate. The budgetary systems have been made to meet the needs of the changing environment which the business organizations face. Businesses need to change their budgetary systems to suit the changing needs of the business environments. The businesses have to face certain difficulties while considering changing the budgetary systems of the business.

The traditional budgets and the other budgetary systems are all economic plans which are made in quantitative terms with time being the major consideration. The budgets are used to allocate the economic resources of the businesses therefore they need to be represented in monetary terms. The budgets are used to monitor the financial well-being of the business organizations by strictly controlling the costs and finances of the business organizations. Budgets provide the management with a direction to continue the attainment of its income goals. Budgets are used to keep strict controls on the expenditures of the business organizations which hence enable the businesses to attain their objectives.

The traditional budgetary control systems are being used by many businesses around the globe and they have not replaced their budgetary control systems which has rendered many businesses as not being able to meet the changing needs of the business environments. Many business organizations having the traditional budgetary systems have realized the benefits of the contemporary budgeting systems and have started to change their budgetary systems.

Budgeting and business environment

The budgetary control systems have been a part of the planning process of the business organizations and they have been in place to meet the objectives of the businesses, set the targets of the businesses and then implement the appropriate action plans to achieve the organizational goals. The traditional budgeting systems have been based on predicting the future using the past trends and numerical facts. The traditional budgetary systems are mostly used for one year and are implemented only in the year in which they are prepared. The budgetary control systems lay the business targets by their planning role which is then compared to the actual results of the businesses and the variances are then calculated. The variances are used to analyze the problems in the business activities and to correct the business ...