Management Accounting Answer To Test Question No:BUD1 On Budget

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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:-

  • Sales budget
  • Finished stock budget
  • Production budget and lastly
  • Materials usage budget.

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