Page 151 - DMGT514_MANAGEMENT_CONTROL_SYSTEMS

Management Control Systems

Notes much less. Further, revenue budget is based on forecast of some conditions for which the sales
manager cannot be held responsible. Nevertheless, effective advertising, good service, good
quality and well-trained sales people influence the sales volume for which sales managers has
control.

Budgeted Production Cost and Cost of Sales

There are two ways of doing:
1. Direct material cost is calculated for Bills of Materials and Part Lists which provides about
quantities and types of material used to build a unit of product, and material price
information from the purchase department. Direct labour is calculated from operation
sheets from the individual engineering department, which provides information on
productive operations and estimated labour time on all products; and wage rate information
from the payroll department.
2. The standard material and labour costs of planned volume level of standard mix of products
are calculated. This method is adopted where the actual mix of sales are different for
budgeted sales mix.
Production managers make plans for obtaining quantities of materials and labour and they
prepare procurement budgets for long lead-time items. They also develop production schedules
to ensure that resources needed to produce the budgeted quantities will be available to cater to
the marketing quantity plus the finished goods inventory based on established policies.

Marketing Expenses

Marketing expenses are expenses incurred to obtain sales. A considerable portion of the amounts
included in the budget may have been committed before the year begins. If the budget
contemplates a selling organisation of a specified number of sales offices with specified personnel,
then plans for opening or closing offices with specified personnel, then plans for change in
manpower or change in the number of sales offices, may have been decided before the year
begins. Advertising may have been planned much in advance.

Logistic Expenses

Logistic expenses usually reported separately from order getting expenses. They include order
entry, warehousing and order picking, transportation to the customer and collection of accounts
receivable. Many of these are engineered costs. Nevertheless, many companies include them in
the marketing budget, because they tend to be the responsibility of the marketing organisation.

General and Administrative Expenses

These are general and administrative expenses both at headquarters and at business units.
Overall, they are discretionary expenses though some components (such as book keeping costs
in the accounting department) are engineered expenses. In budget preparation, because these
are discretionary, lot of attention is given to these categories. Since the appropriate amount to
authorize is subject to much debate.

Research and Development Expenses

The R&D Budget uses either of the two approaches or a combination of them. One approach is to
focus on the total amount. This may be the current level of spending, adjusted for inflation or it

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