Budget Efficiency for Cost Control Purposes †MyAssignmenthelp.com

Question: Discuss about the Budget Efficiency for Cost Control Purposes. Answer: Introduction: With the help of budget reports, the business owners could evaluate the performance of their organisations and in case of large-sized organisations, the managers evaluate the performance of the department and control costs. For instance, the managers and owners could use these reports for providing incentives to their staffs (Drury, 2013). This report is a crucial tool to manage cash flow for the organisations extending credit to the clients or customers. With the help of this report, the customer balances could be broken down owing to their owed duration. For instance, if a large group of customers is unable to clear their balances, it is necessary for the organisation to tighten its credit policies. In addition, it helps the collection department to look into past debts. Control is the method of assessing, gauging, monitoring and rectifying actual results to assure that the plans and goals of the business organisation are accomplished. This has been achieved through feedback. Feedback could be considered as the information that could be used in evaluating or rectifying the steps taken in implementing a plan. Management accounting enables in the control function by producing reports of performance and control reports that depict variances between actual and expected performances. The use of control and performance reports follows the principle of management by exception. These reports act as the basis to undertake essential corrective actions to control operations. In case of considerable variations between actual and budgeted outcomes, a manager would investigate to ascertain what is not going well and probably that the units or subordinates might require assistance. In the words of Fullerton, Kennedy Widener (2013), product costing is the method of identifying and understanding the different accrued expenses in the manufacture and sale of a product. This initiates with the purchase of raw wahes materials to expenses related to transportation of the final product to retail establishments. This is broadly considered as highly significant component on planning and evaluating the overall strategies of business. Thus, a product costing system gathers the cost incurred in the process of production and apportions those costs to the final products of the organisation. The product costing system is required for the following four purposes: Use in financial accounting Use in managerial accounting Use in cost management Use in reporting to the interested firms There is interlocking between these two entries, since the workers could not be preserved for future use. In case, any worker is not paid during a specific period, the person could be used for production, instead of prepaid payment (Otley Emmanuel, 2013). On the contrary, if the workers are utilised for production for a specific timeframe, the payment needs to be made within a specific timeline after the period of production. Hence, it could be remarked that both entries are associated with each other and each entry is the effect of the other entry (Fullerton, Kennedy Widener, 2013). The apportionment process under which the cost of overhead are apportioned to every unit of products, which are produced depending on a single driver cost, is considered as a conventional method. In the modern era, the accountants experience issues in apportionment of indirect costs using single cost drivers. On few occasions, the single driver cost would be associated with some costs of overhead (Klychova, Faskhutdinova Sadrieva, 2014). This has necessitated the development of activity-based costing for the apportionment of indirect cost pertaining to drivers of cost. The existing report explains the arguments for activity-based costing system and its supremacy over the traditional costing method. Traditional costing system and activity-based costing system: The manufacturing organisations are often able to enjoy several benefits with the help of activity-based costing system. Firstly, the overall cost of production is ascertained by choosing the cost of those activities using the above-depicted method. In addition, this method utilises the pertinent cost drivers by distributing every individual that would use the more accurate and pertinent allocation process. The costs related to production of the finished products are determined with the help of the method that enables the management in undertaking pertinent decisions (Otley, 2016). However, there are certain problems associated with the method of using the activity-based costing system in the context of global business organisations. In this method, the apportionment of indirect costs is not possible using the method of single driver for utilising the advanced production cost. Along with this, activity-based costing system does not take into account the single driver method or any other drivers. The primary reason behind this is that might not account for every type of costs (Rieckhof, Bergmann Guenther, 2015). Finally, there is unsuitable production cost is the outcome of improper apportionment of costs and this is the cause, which drives the management to undertake decisions about the control cost and the system of pricing. Conclusion: The organisations are needed to minimise the production cost due to the growing global competitiveness. When differentiated with the conventional costing system, an effective cost of production is provided with the help of the activity-based costing system. Hence, from the above dissection, it could be remarked that the manufacturers would be able to obtain competitive supremacy over their market rivals with the help of the activity-based costing method. In order to employ this method, extensive resources are needed in relation to the business organisations having restricted funds, as they might not be able to employ this specific system. Reciprocal services method (Normal view): Reciprocal services method (Formula view): Algebraic method for reciprocal services method: As per the allocation process, The overall cost of S1 (x) = Direct centre cost of S1 + {20% x Total Cost of S2 (y)} Or, x = $15000 + (20% * y) The overall Cost of S2 (y) = Direct centre cost of S2 + {10% x Total Cost of S1 (x)} y = $13,000 + (10% * x) y= $13,000 + [10% * ($15,000 + 20%y)] y= $13,000 + $1,500 + 2%y y - 0.02y = $14,500 0.98y = $14,500 y = $14,500/0.98 = $14,796 x = $15,000 + 20%y x = $15,000 + (20% x $14,796) x = $15,000 + $2,959 = $17,959 Matrix algebra equation (Normal view): Matrix algebra equation (Formula view): References: Drury, C. M. (2013).Management and cost accounting. Springer. Fullerton, R. R., Kennedy, F. A., Widener, S. K. (2013). Management accounting and control practices in a lean manufacturing environment.Accounting, Organizations and Society,38(1), 50-71. Klychova, G. S., Faskhutdinova, ?. S., Sadrieva, E. R. (2014). Budget efficiency for cost control purposes in management accounting system.Mediterranean journal of social sciences,5(24), 79. Otley, D. (2016). The contingency theory of management accounting and control: 19802014.Management accounting research,31, 45-62. Otley, D., Emmanuel, K. M. C. (2013).Readings in accounting for management control. Springer. Rieckhof, R., Bergmann, A., Guenther, E. (2015). Interrelating material flow cost accounting with management control systems to introduce resource efficiency into strategy.Journal of Cleaner Production,108, 1262-1278.