Answer To Management Accounting Test Question BUD1:-

(a)  The principal budget factor is the factor that limits the activities of an organization because such a limit/constraint will have a pervasive effect on all plans and budgets. The limiting factor must be identified during the budget preparation process

      Examples of principal budget factors are:-

• Shortage of labor material

• Shortage of production capacity.

• Shortage of finance or working capital

• Shortage of demand for goods or services.

(b)   Budgeting is not considered by participants as a neutral, objective, purely technical process which is a view adopted by many accountants. The human subjective aspects cannot be overemphasized and these are dealt with below under the following headings:goal congruence, participation, motivation, goal definition and communication.

Behavioral problems associated with budgetary control are:

• Managers may complain that budgeting takes too much of their time;

• “Slacks” may be built into expenditure estimates and thus managers may lobby for a higher budget expenditure allowance.

• Co-operation and communication between managers might be minimal.

(c) 4 criticisms of traditional budgetary control systems are:

• Resistance from staff particularly those who mistake the budget as a measurement of their performance to be used against them;

• The difficulties in setting the desirable levels of attainment- motivation vs discouragement, realistic vs unrealistics

• The continuous education of staffs at all level to accept budget as desirable aids/goals for the benefit of both employer and employee and

• The getting away from familiarity to venture forth a newer, more dynamic approach. The feeling of security with what has always been even if it has much inefficiency.

4 benefits are :

• Maximum usage of company available resources;

• Corrective actions on adverse actual results;

• Can achieve the business’ objective and

• A basis for measuring efficiency which is useful in rewarding employee.

(e) The order is as follows:-

• Sales budget

• Finished stock budget

• Production budget and lastly

• Materials usage budget.