Introduction
Budgeting is an essential process for all businesses. By using the company’s current financial data as well as its historical data, a business should be able to forecast and plan a budget for the company’s future. A budget is defined as “a statement of monetary plans that is prepared in advance of a forthcoming period, usually one year” (Brookson 2000). This budget should align with the company’s strategic and operational plans and is the tactical implementation of the company’s business plan. Since the company’s budget is controlled by all levels of the company’s management, the company budget is usually an aggregate compilation of the departmental budgets. Budgets are used to help establish a company’s sales forecast, product pricing, as well as assist in investment planning. Budgets are also used by management for motivation and performance evaluation. A manager’s performance evaluation will usually relate to their contracted compensation plan and will be paid as a bonus in addition to their salary. These incentives are usually based on a percentage of meeting or exceeding budgeted or targeted goals which are established and controlled by management. Because of management’s control of the numbers, budgets and targeted goals are easily manipulated in order to increase the manager’s compensation. When this process occurs, it is known as “gaming” the system.
Gaming the System
Managers have been known to game the system when their personal incentives seem more attractive than the benefits of the organization. Gaming the system occurs when an organization’s explicit policies and procedures are being used which managers feel are obstacles in achieving the organization’s goals. “By flexing the...
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...reshold which in turn will benefit the company.
Works Cited
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I attended the Saturday Lab 1 session discussing the Denison Specialty Hospital case study. In our session, we had a through discussion into the different budget terminology. I learned about the difference between accrual and cash accounting methods, which is based on the timing of when the revenue and expenses are recognized. I also learned about responsibility centers as an organizational unit under the supervision of a manager, who is responsible for its activities and results. In addition, the manager is accountable for the budget of the department that they head. Therefore, a centralized form of management in developing the budget because it makes easier to because the information for the department budget is located
[1] Noreen, Eric W., Brewer Peter C., et al., Managerial Accounting for Managers, Second Edition, McGraw-Hill/Irwin, New York, NY, 2011.
During the year, budget performance was monitored closely. Each week’s and monthly, sales revenue performance figures were sent to Herb Stolzer by Roy Black. Roy Black also sent a monthly management report to Stolzer that included income statement highlights and a summary of key balance sheet figures and ratios. All information was provided with reference to (1) position last month (2) position this month (3) budgeted position.
McManus, Doyle. “Drawing Budget Battle Lines.” Editorial. Los Angeles Times. Los Angeles Times, 14 Apr. 2011. Web. 5 June 2011. .
UMUC, Ethics and SOX Powerpoints, references and notes presented by Professor George Petrello, for Summer 2011 The Economics of Management Decisions.
...d, stock manipulation, and having lower ranking workers’ jobs seen as meaningless, may not seem so appealing to those possessing empathy. However, success is being measured as monetary rewards for this review, and cold-hearted decision-making seems to be the culprit of raking in those rewards. How the psychopaths or the other employees in question feel about making decisions required to gain higher corporate status is just a mediator variable.
Several employees have witnessed varied offensive conduct by Mazey but have kept opinions to themselves until recently (Yemen & Clawson, 2007). Senior management at Hudson is aware of his behavior via 360o reviews; however, Mazey’s ability to produce revenue secured his promotion to vice president (Yemen & Clawson, 2007). Mazey acquiesces to upper management and believes employees of lower stature should do the same for him, while also accepting his unprofessional, degrading and condescending habits (Yemen & Clawson, 2007).
Wildavsky, A., & Caiden, N. (2004). The new politics of the budgetary process (5th ed.). New York, NY: Pearson/Longman.
Budgetary planning may differ between organizations. Single-period budgets and rolling budgets have methodologies that provide advantages and disadvantages that may make one budget time frame better than another. A single-period may require less time in planning during a fiscal year, but is less accurate than a rolling budget that is continuously planned on a repetitive basis. In either case, budgets are planned in advance in order for a company to operate profitably, and less so to have "actual results equal budgeted results." (p. 496)
[5] Colin Drury, Management and Costing Accounting, (7th edition), Chapter 17, Standard costing and variance analysis, p. 425-436
Participative Budgeting is the situation in which budgets are designed and set after input from subordinate managers, instead of merely being imposed. The idea behind this sort of budgeting is to assign responsibility to subordinate managers and place a form of personal ownership on the final budget. Nearly two decades of management accounting research has resulted in equivocal findings on the consequences and effects of participative budgeting (Lindquist 1995). Participative budgeting certainly has various advantages, these include the transferral of information from subordinate to superior increased job satisfaction for the subordinate, budgetary responsibility and goal congruence. Its disadvantages include budgetary slack and negative motivation, however it is the conditions in which participative budgeting takes place determines whether the budgeting process is successful. The conditions are dependent on various factors such as the level of participation, level of subordinate influence, the extent to which budgetary slack takes place, volatility, job related information, and the complexity of the budget.
Garrison, R. H., Noreen, E. W., & Brewer, P. c. (2010). Managerial Accounting. New York: McGraw Hill/Irwin.
In this era of high competition, traditional budgeting approaches doesn’t encourage innovation among the employees instead are focused on reduction in costs.(Player, 2003).
Heisinger, K., & Hoyle, J. B.(2012). Accounting for Managers. Creative Commons by-nc-sa 3.0. Retrieved from: https://open.umn.edu/opentextbooks/BookDetail.aspx?bookId=137
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