Page 168 - DMGT514_MANAGEMENT_CONTROL_SYSTEMS

Unit 7: Budgeting: Tool for Management Control

Management by Objectives: The financial objectives that managers are responsible for attaining Notes
during the budget year are set forth in the budgets described earlier.
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.

Revenue Budgets: A revenue budget is the starting point for budgeting exercise and consists of
unit sales projection multiplied by expected selling price.
Standard Capacity usage Ratio: This is the relationship between the budgeted number of
working hours and the maximum possible no. of working hours in the budgeted period.
Strategic Planning: Strategic planning is the process of deciding on the nature and size of
several programmes that are to be undertaken in implementing an organisation's strategies.

7.13 Review Questions

1. What are the basic characteristics of budgeting?
2. What is the function of budget committee and budget manual?
3. What is the starting point for preparation of individual budgets?

4. Discuss the relationship between the production budget and availability of raw materials.
5. In controlling raw materials, there are two basic responsibilities. Indicate the two
responsibilities and explain the profit planning and control approach to resolving them.

6. Explain the relationship of the analysis of budget variations to the monthly performance
report.
7. As a new corporate controller, respond to a manager’s remarks made at first Monday
morning meeting, “These weekly variance reports must be costing us a lot of money. Let
us just prepare them once a quarter. As long as the information on the report is correct,
who cares when we get them?
8. Comments on the following statement made by an assembly worker to his supervisor.
“Standards as just pressure device used by management to criticize employees. Nobody
ever achieves the standards.”

Answers: Self Assessment

1. Strategic planning 2. Budget

3. Budget 4. Beginning
5. Revenue budget 6. Marketing
7. Cash flow statement 8. Budget preparation
9. Top down 10. Short-term

11. Standard capacity usage ratio 12. Calendar Ratio
13. Formal reporting 14. Spending/Expenses

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