1.0 Introduction 2
2.0 Budgeting literature Review 2
3.0 Changing Budgeting Suggestions 4
4.0 Alternative Approaches 6
5.0 Conclusion 7
6.0 Reference 9
This report sets out to give some possible advices on how to solve the current predicament that the Rattan Furniture division has faced now. Based on the analysis of the budgeting process which has been practiced in our division, some necessary discussion in the budgeting literature will be involved in order to evaluate the current process against the advantages and limitations of budgeting. And then some suggestions on the implications of the actions will be offered so as to meet the budget. In this report, alternative approaches to budgeting will be discussed to help the organization consider implementing in the future.
2.0 Budgeting literature Review
There are three budgeting methods in general. The production manager, Kay Gray, is given the sales estimate for rattan furniture. She used the most recent productivity data for the factory. And then she made the estimation of the budget year’s salaries and wages and then reduced that figure by 5% to account for projected increased efficiencies (based on a learning curve tabulated for the division). For variable manufacturing overheads, she assumed a historical percentage of direct production costs and reduced that figure by 5% to account for planned increased efficiencies. For costs of fixed manufacturing overheads, she used actual costs reported on the most recent monthly income statement and applied a 4% increase (Allen, B. R., Brownlee II, E. R., Haskins, M. E., and Lynch, L. J., 2005). Based on the background of the case, the following two is discussed for its relating with this case.
Incremental budgeting is a traditional one, which is widely used in commercial organisations and in the public sector. It means basing the budget for a department or function on that of the previous period, usually adjusting for inflation by a...