I have chosen the following quote to expound upon: “One major criticism of budgeting is that it is used as a ‘cost reduction’ tool rather than a ‘cost control’ tool. The objective of the budget is to control costs at an efficient level of operation.”

Deontray Johnson

WednesdayMay 20 at 9:41am

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Manage Discussion Entry

Greetings all,

I have chosen the following quote to expound upon: “One major criticism of budgeting is that it is used as a ‘cost reduction’ tool rather than a ‘cost control’ tool. The objective of the budget is to control costs at an efficient level of operation.”

I find this statement to be accurate as I remember a time when I took over as the financial chair for my church. The church was a well to do, about $500K in an everyday checking account and about another $100K in bonds and savings. I remember one of the first things that I made a change on was an operating budget, where the church would allow the ministries to spend up to so much money, and once that limit was met, the church would not give money to that ministry. But the ministries could receive donations in other ways that would allow them to replenish their budget. This vision was meant to help control spending as we had ministries such as the singles ministry that would spend three or four thousand a year on social gatherings.

It is essential to be mindful of what we do with our earning as we can foolishly overspend and not meet our monthly obligations. People in the church, those over ministries, were furious as they thought we were trying to restrict money. Yet when hard times hit the church, and they ate up the 500K in the checking and about 75K in the bonds and saving, they were grateful for the budget as we never missed a beat.

In the business world, a budget is just as if not more than critical. Budgeting goes as deep as to how much inventory should be ordered, inventory reorders, how much scrap is anticipated, and salaries. Budgets are an essential business operation, as it gives guidance to the end-of-year standings (2019, Szablics), just as it would in personal use. According to Investopedia.com, a budget is designed to predict the revenue and expenditure for the year. While we can guess our outcomes, there are unforeseen circumstances that can cripple a budget, such as the COVID-19. We can not always control our income, but we can do a pretty good job on what we spend.

References:

ELMERRAJI, J. O. N. A. S. (2009, September 9). How Budgeting Works for Companies. Retrieved May 19, 2020, from https://www.investopedia.com/articles/07/budgetingforcompanies.asp

Szablics, B. (2019). Smart budget concept1, 135–148.

 

 

 

 

Justin Jones

YesterdayMay 21 at 5:20pm

Manage Discussion Entry

Although all three of these quotes make a lot of sense when it comes to budgeting, I chose the following quote to talk about:

“Even though budgets are quantitative tools, considerable emotion is connected to budgeting. The individual in control often sees the budget as a means of getting things done. People being controlled often have feelings of anxiety because their success and promotion are tied directly to the budget.” (Schneider, 2012)

I think that this quote makes a lot of sense because managers who set the budget do so with the intent of keeping costs as low as possible but producing maximum profit for the organization.  Employees in certain departments who have their budget set by managers often feel overwhelmed that they must be able to be profitable within the budget set forth.  In a perfect world, departments would have as much money as they need as long as they are turning a profit, but we all know that is not the case.  When monetary parameters and limitations are set within departments, it can create a lot of anxiety for the employees to decide how they will utilize their allocated budget to make their department successful.  It often leaves employees having to make stressful cuts to things that they may see fit to help them but are unable to afford it with the money they are given.  Managers set the budget with high expectations of getting a return on profit and do not always take into consideration the limitations that it can put on each department.  Therefore, employees have increased stress to make their budget work.

 

References

Schneider, A. (2012). Managerial Accounting: Decision Making for the Service and Manufacturing San Diego, CA: Bridgepoint Education

 

 

 

 

 

 

 

 

 

 

Deontray Johnson

Yesterday May 21 at 5:30am

Manage Discussion Entry

Greetings all,

Standard cost, according to our text, is a set cost that managerial and industrial engineering has performed studies to set a fixed cost. The cost of the product does not change unless something of the build changes. At my current job, we use a standard cost (2017, Schneider). As technology changes, so do our products. In our production plant, we earn hours for fixtures made, and to determine our production number for each department; we tally the hours burned and divided into what was earned. When new options are added to lights, it is critical that we tie off with our manager and engineer to begin a line balance change. What does this do? If we have to add more workforce or effort to build a fixture, that means that the earned hours to build the fixture have to change. In most cases, it may not be much, but every penny counts.

The disadvantage that I see to standard cost is when the price of goods and services inflate, but your prices are locked in. A year ago, the cost of particular metals increase, but because we had quoted prices or a minimum wage increase took place, we as a company have to eat these expenses. The same would be true if there were a reduction in the cost of material; the company would make a profit. It is essential that someone is paying attention to changes as well. In Nissan, we counted everything that the operator did to ensure proper credit was given. If a person picked up two bolts, we gave them credit for picks, places, rehandles, walk steps, etc. This may seem a little overboard, but it allowed us to understand where work could be added to balance the line correctly, which played a factor in headcount reduction, which is one of the manager’s yearly metrics to reduce so many heads out of a department.

Reference:

Schneider, A. (2017).  Managerial Accounting: Decision making for the service and manufacturing sectors  (2nd ed.) [Electronic version]. Retrieved from https://content.ashford.edu/

 

 

 

 

 

 

 

 

 

Randi Slaughter

YesterdayMay 21 at 4:31pm

Manage Discussion Entry

A standard cost is the cost given to a product in an amount that management believes one unit of the product should cost and consists of a price standard and a quantity standard (Schneider, 2017).  A price standard indicates the price for materials, labor rates, and factory overhead rates.  A quantity standard indicates the amount of materials, labor time and factory overhead volume.  A couple of examples of standard costs are median wages paid per employee and the average utility rates for the facility.

There are several advantages of a standard cost system.  The budget itself is composed of standard costs and would be impossible to put together without using the standard cost system.  This then helps when comparing actual cost at a later point in the fiscal period.  Management by exception highlights weak areas that require a manager’s attention (Schneider, 2017).  In terms of cost management, a standard cost system are periodically reviewed so operations can be analyzed frequently to highlight waste and inefficiency.  This in turn will help in managerial decision making.  However, there are some disadvantages.  Most contracts or products utilize actual costs.  There could also be a number of variances between standard cost and actual cost.  And there are many situations where standard cost systems are not helpful and could lead to incorrect management decisions.

References

Schneider, A. (2017).  Managerial Accounting: Decision making for the service and manufacturing sectors  (2nd ed.) [Electronic version].  Retrieved from https://content.ashford.edu/