RE: Springfield Budgeting Process

Deangela Dixon

11/18/2012 6:40:01 AM

It seems the company has taken a close look at the production costs. Marketing costs have also been reviewed by the company. I would suggest every expense, be examined with a finance person and/or the person responsible for spending money in the area. Production should also be involved with a finance person. A meeting should be in place. After the meetings take place a draft budget should be prepared for review. The president should review and approve the budget. The finance or accounting department should be assigned production costs and other costs which are deducted from sales to derive net income. On a monthly basis finance or accounting should review the actual budget and discuss any significant overages with the departments responsible for the expenses.
RE: Springfield Budgeting Process Deangela Dixon 11/19/2012 5:07:47 AM

The first thing Springfield could do to get them moving in a better direction is a forming a budget committee. Instead of approaching the different departments separately at different times, it would be better time management to get them all together at once. Representatives from the marketing department and the manufacturing unit would be able to consult with upper management to ensure their needs are met in order to maximize profits for the company. They need to avoid budget padding and impossible budgeting because it does little to help the overall organizations budgeting goals and may only create frustration. A companys structure may affect how their budget should be approached. In the Springfield case it is evident that their current approach is not working and they need to rethink their strategy. As stated earlier the sales budget is the first budget to be prepared. The main reason for this is because all of the other business budgets are based on this one document. Without the sales budget the president cannot forecast anything else that will go on within the business. It also helps sets a goal for the company to reach.

If you know the sales volume of units of product you want to sale in a fiscal year then you will make production budget according to that sales requirement therefore you will have the production information in mind, you will purchase raw material, hire labor according to requirements. So if you don't know about how much you want to sale then how would you budget other things and how would you compare your performance at the end of fiscal year. The way I would implement this approach is to develop a budgeting committee of senior executives. Senior level personnel will bring insights about all aspects of sales, production, and financing. They are needed to effectively promote for the opportunities and resource needs within their various unit. The committee will have to monitor progress against the budget that is developed. Most importantly the budget should be realistic and quantifiable and frequently evaluated.
RE: Behavioral Effects Deangela Dixon 11/21/2012 4:27:50 AM

People control operations of any business.The behavioral effects of these approaches are people (employees) may feel undervalued which seems to cause pressure. Pressure to acheive budgets results in stress, interpersonal conflicts, reduced effort, and poor communication. Motivation to succeed will become low. Top-down management can assure support from top management that there will be the highest level of motivation. Consequences influence behavior, you reinforce a certain behavior and they will act because of consequences. With the top-down approach upper-level executives call the shots, and lower-level units are essentially reduced to doing the basic budget calculations consistent with directives. Mid-level executives may color the budget process by refining the leadership directives as the budget information is passed down through the organization. Lower-level managers may view the budget as a dictatorial standard. Resentment can be fostered in such an environment. Further, such budgets can sometimes provide ethical challenges, as lower-level managers may find themselves put in a position of ever-reaching to attain unrealistic targets for their units. The budget is a most effective communication device in getting employees to hear the message and perform accordingly. Bottom-up approach driven by involving lower-level employees in the budget development process. Top management may initiate the budget process with general budget guidelines, but it is the lower-level units that drive the development of budgets for their units. These individual budgets are then grouped and regrouped to

form a divisional budget with mid-level executives adding their input along the way.
http://www.principlesofaccounting.com/chapter21/chapter21.html

RE: Midterm Practice Exam

Deangela Dixon

11/18/2012 6:06:18 AM

1. Indirect Labor is a part of conversion costs. Indirect labor is a labor cost that is not related to the creation of products. Indirect labor includes the labor cost of janitors, supervisors, materials handlers and night security. Conversion cost is an element of direct labor. Conversion cost = direct labor + factory overhead ( which includes indirect materials, indirect labor and other indirect costs).
RE: Midterm Practice Exam Deangela Dixon 11/19/2012 4:40:23 AM

2. Prime cost and conversion cost share the common element of direct labor in regards to total cost. Direct labor is the time spent by employees who work specifically on manufacturing a product or performing a service. Direct materials and direct overhead can be combined into prime cost. Direct labor and factory overhead may be combined into conversion cost, which represents the cost of converting direct materials into finished products. Simply put: Conversion Cost = Direct Labor + Manufacturing Overhead and Prime Cost = Direct Materials + Direct Labor. Variable overhead are manufacturing costs that vary in relation to changes in production output.
RE: Practice MidTerm Exam Deangela Dixon Discussion Modified:11/20/2012 5:40 AM 11/20/2012 5:39:50 AM

Page 2. 3. Discretionary fixed costs are none of those listed. Discretionary fixed costs (often referred to as managed fixed costs) arise from annual decisions by management to spend on certain fixed cost items such as advertising, research, public relations and research and development activities. It is a fixed asset which can be eliminated or reduced without having an immediate impact on the reported profitability of a business. There are not many discretionary fixed costs, but they can be quite large, and so are worth considerable review by management.

RE: Practice Midterm Exam

Deangela Dixon

11/21/2012 4:48:22 AM

Page 2. 4. An example of committed fixed cost is a long term lease. A committed fixed cost has a long future planning horizon of more than on year. These types of costs relate to a companys investment in assets such as facilities and equipment. Once such costs have been incurred, the company is required to make future payments. They are difficult to adjust. Also included in committed fixed cost are real-estate taxes, insurance, professional salaries and depreciation. The website
http://accounting4management.com/variable_cost_and_fixed_cost.htm#5QCC5iBUD1ISHwQj.99

states committed fixed cost cannot be significantly reduced even for short period of time without seriously impairing the profitability or long run goals of the organization.