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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:-
- Production budget and lastly