Management Accounting Projected Revenues and Expenses

Question: Discuss about the Management Accounting for Projected Revenues and Expenses. Answer: Participative Budgeting Process: The budget can be defined as the estimation of projected revenues and expenses, related to the future activities of an organization, department or project. Successful implementation of budget depends greatly on the process of budgeting. It has been observed that the budgets, which has been implemented successfully and proved to be more accurate, are mostly prepared in parts by the respective departmental heads, rather than the budgets, imposed on the different departments by the higher management. This process of budgeting is referred as participative budgeting process (Heinle et al. 2014). Benefits of Participative Budgeting Process: Participative budgeting process can provide various operational behavioral benefits to the organization. The benefits are discussed below: Operational Benefits: Increase in Productivity: As the managers and the selected departmental personnel use to prepare their own department budget, the department becomes more conscious to maintain the budget. They use to work more to achieve the target, set by themselves. Thus it helps to increase the productivity of the staffs. Reduced Costs: The supervision and control over the cost become lesser. The departmental heads use control the expense level personally so that the budgeted costs are maintained properly. It causes reduction in overall cost of the organization (Derfuss 2015). Behavioral Benefits: Job Satisfaction: When the employees suggestions and recommendations are considered for budgeting, it creates psychological impact on the employees and increases their job satisfaction level. Motivation:- Higher level of job satisfaction, in turn, uses to motivate the employees more. Especially, if the employees or the departments are rewarded for maintaining the budget properly, the employees feel more motivated by such budgeting process (Bryer 2014). Deficiencies in Rileys Participative Policy: It has been observed that the participative policy, described in the case, has few deficiencies. Those deficiencies are discussed below:- Projected expense limit are fixed upto an extent. Government projects are included in the departmental budgets. Projected outcomes of the departments are not included in the budget. There is no additional motivational factor introduced for the employees to maintain the budget. Recommendation for Proper Budgeting Process: The above-mentioned deficiencies can be removed by adopting the following measures: The expenditure limits should be more flexible, instead of limiting it within the appropriation target. Departmental managers may have some innovative plans, which may require extra funding. In that case, if the budgeted expenses are made fixed within a certain level, then such plans cannot be executed (Macinati and Rizzo 2014). The final budget is prepared by cutting some of the primary budget for contingency fund, whereas, the expenses for Government projects within the budget are kept intact. It will reduce the amount of other necessary expenditure at higher proportion. Therefore, there should be separate budget for the government projects. The budget includes both the inputs and outputs. In this budget, only the inputs are highlighted. The output of each department should also be measured in the budgets. Then only the performances of the departments can be evaluated properly. There should be some reward system for maintaining the budget properly. The departmental managers and the employees will be more motivated then to increase their efficiencies. Reference List: Bryer, A.R. 2014, "Participation in budgeting: A critical anthropological approach",Accounting, Organizations and Society,vol. 39, no. 7, pp. 511-530 Derfuss, K. 2015, "Relating Context Variables to Participative Budgeting and Evaluative Use of Performance Measures: A Meta-analysis: Relating Context and Budgeting Variables",Abacus,vol. 51, no. 2, pp. 238-278 Heinle, M.S., Ross, N. Saouma, R.E. 2014, "A Theory of Participative Budgeting",The Accounting Review,vol. 89, no. 3, pp. 1025-1050 Macinati, M.S. Rizzo, M.G. 2014, "Budget goal commitment, clinical managers' use of budget information and performance",Health policy (Amsterdam, Netherlands),vol. 117, no. 2, pp. 228-238