Bhimani, Horngren,
Datar and Rajan,
Management and Cost Accounting, 5
th
Edition, Instructor’s Manual
© Pearson Education Limited 2012
14.3 Strategy, plans and budgets are interrelated and affect one another. Strategy is abroad term that usually means selection of overall objectives. Strategy analysis underlies both long-run and short-run planning. In turn, these plans lead to the formulation of budgets. Budgets provide feedback to managers about the likely effects of their strategic plans. Managers use this feedback to revise their strategic plans.
14.4 Budgeted performance is better than past performance for judging managers. Why This is mainly because the inefficiencies included in past results can be detected and eliminated in budgeting. Also, new
opportunities in the future, which did not exist in the past, maybe ignored if past performance is used.
14.5 Budgets maybe
a vehicle for communication, but sometimes the vehicle breaks down. For example, the budget staff often find they are unable to obtain line management participation in developing budgets.
In some cases, line people tend to relinquish line budget responsibilities to the budget staff. Line personnel simply do not wish to be bothered with the budget. This indicates alack of good communication.
14.6 Kaizen budgeting is a budgeting approach that explicitly incorporates continuous improvement during the budget period into the resultant budget numbers.
14.7 Benefits that companies report from using activity-based budgeting include
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