P1 Exam Dumps : Management Accounting

A purposes of budgeting is to act as a control mechanism, with actual results being compared against budget.

Another purpose of a budget is to set targets to motivate managers and optimize their performance.

The participation of managers in the budget setting process has several advantages. Managers are more likely to be motivated to achieve the target if they have participated in setting process has several advantages. managers are more likely to be motivated to achieve the target if they have participated in setting the target.

Participation in budget setting can reduce the information asymmetry gap that can arise when targets are imposed by senior management. Imposed targets are likely to make managers feel demotivated and alienated and result in poor performance.

Participation in budget setting can cause problems; in particular, managers may attempt to negotiate budgets that they feel are easy to achieve which gives rise to “budget padding” or budgetary slack.

Managers will not ‘empire build’ because they don’t believe that the size of their budget reflects their importance within the organization.

The total budgeted production overhead cost was $ 1 285 000

The total budgeted production overhead cost was $ 1 305 000

The total budgeted production overhead cost was $ 2 195 000

The total budgeted production overhead cost was $ 1 188 000

The total budgeted production overhead cost was $ 1 258 000

It avoids the complacency inherent in the traditional incremental approach where it is assumed that future activities will be very similar to current ones.

It discourages a questioning approach by focusing attention not only on the cost of the activity but on the benefits it provides. The charity managers will not articulate the benefits encouraging them to think clearly about the activities.

Preparation of the decision packages will normally require the environment of many employees. This environment may produce useful ideas and promote job satisfaction.

The creation of decision packages and their subsequent ranking by top management is very time consuming and costly. The charity will need to assess whether the benefits of the system outweigh the costs involved.

In an organization like a charity, the decision packages are not very disparate and difficult t compare.

In applying traditional budgeting, ‘activities’ may result in functional departments rather than cross functional activities and thus distract attention from the real cost-reduction issues.