12implementing budgets

acca f2 第12章implementing budgets，具体内容有： Budgets and people Cost control and cost reduction

implementing budgets

• Budgets and people
  • is to assist management in planning and controlling the resources of their organisation by providing appropriate control information
  • The importance of motivation
    • Behavioural problems
      • The managers who set the budget are not responsible for achieving it
      • Lack of goal congruence
      • Poor attitudes when setting the budget
      • Poor attitudes when putting plans into action
      • Control is applied at different stages by different people
    • Goal congruence
      • when individuals make decisions that are in their self-interest and also in the best interest of the organisation.
    • Dysfunctional decision-making
  • Participation in budgeting
    • Top-down/imposed style budgeting
      • An imposed/top-down budget is set without allowing the budget holder to have the opportunity to participate in the budgeting process.
      • appropriate in
        • In newly formed organisations
        • In very small businesses
        • During times of economic hardship
        • When operational managers lack budgeting skills
    • Bottom-up/participative budgeting
      • ensures all budget holders are given the opportunity to participate in setting their own budgets.
      • Advantages
        • Staff doing the work have the most accurate knowledge of operations
        • More achievable targets based on local knowledge
        • Morale and motivation improved as people are working towards their own budgets
        • Reduces the work load of top management
      • Disadvantages
        • Time consuming
        • Staff may set targets that are too easy and lack consistency (budgetary slack)
        • May never get agreement if too many conflicting views
        • Staff may lack skills/knowledge required
  • Performance evaluation
    • The key features of feedback
      • Clear and comprehensive reports
      • Reports identify controllable costs and revenues
      • Timely reports (eg so control action can be taken)
      • Accurate information
    • Style of evaluation Comment
  • Budgetary slack
  • Controllable vs uncontrollable costs
  • Managerial incentive schemes
    • Profit sharing schemes
      • Advantages
        • The company will only pay what it can afford out of actual profits.
        • Bonus can also be paid to non-production personnel.
      • Disadvantages
        • Employees must wait until the year end for a bonus(ie long-term commitment without the incentive of immediate reward).
        • Factors affecting profit may be outside the control of employees.
        • Too many employees involved in a single scheme may not have a great motivating effect on individuals.
    • Incentive schemes involving shares
      • Advantages
        • Employees feel they have a stake in the business.
        • ·May offer incentive to employees to make decisions that focus on long-term benefits (rather than just short-term profits)
      • Disadvantage
        • ·Benefits are not certain as the market value of shares cannot realistically be predicted.
        • ·Benefits are not immediate, as a scheme must be in existence for several years before members can exercise their rights.
    • Value added incentive schemes
      • Value added=sales-cost of bought-in materials and services.
      • excludes any bought-in costs, and is affected only by costs incurred internally, such as labour.
• Cost control and cost reduction
  • Approaches to cost reduction
    • ·Crash programmes
      • cut spending levelsoften a reaction to cash flow or profitability
    • Planned programmes
      • reduce costs-this involves a continual assessment of the organisation even during times of prosperity
  • Scope of cost reduction programmes
    • embrace the activities of the entire company
    • have long-term and well as short-term objectives:
      • ·In the short term only, variable costs can usually be susceptible to cost reduction efforts. Fixed costs, eg rent cannot easily be changed.
      • •Some fixed costs are avoidable in the short term(eg advertising) these are known as discretionary fixed costs.
      • In the long term, most costs can be either reduced or avoided.
  • Methods of cost reduction
    • Improving efficiency
      • improve the efficiency of materials usage, the productivity of labour or the efficiency of machinery and other equipment.
  • Value analysis
    • Value
      • Cost value:Cost value is the cost of producing and selling an item.
        • Exchange value:Exchange value is the market value of the product or service.
      • Use value:Use value is what the article does;the purposes it fulfils.
      • Esteem value:Esteem value is the prestige the customer attaches to the product.