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Advantages of Line Item Budgeting
Line item budgeting system
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A line item budget is often referred to as the most simplistic and common budgeting system used by organizations. A line item budget is a budget that contains line items of expenditures for analysis, authorization, and control. A line item budget usually contain expenditures such as office supplies, salaries, travel and utilities (Mckinney,2015). Line item budgeting is designed to simplify an organizations spending. It shortens the budgetary planning process because it is builds upon the organizations preceding fiscal budget. With line item budgeting, the organization creates an estimated budget by basing it on the organizations previous activities and spending habits. Furthermore, line item budgeting became a common form of budgeting after …show more content…
This form of budgeting requires managers to review each function of the organization and analyze its expenditures and needs (Mckinney,2015). At the start of every new fiscal term, the organizations budget will zero out. With zero base budgeting, the organization thoroughly discuss and evaluate the organizations goal for that fiscal year. From there, the organization holds staff wide meetings to provide each department the chance to have an input and finding new solutions on reaching the newly established mission. Zero-base budgeting focuses on saving the organization money. Furthermore, “zero-base budgeting requires that managers defend every activity under their control before funds are allocated” (Mckinney,2015,p.405). Before allocating any funds, the organization reviews each department to determine if it is cost-effective or an unproductive activity (Callaghan,2014). Zero-base budgeting may be rigorous and meticulous, but this methods is about reducing an organizations wasteful spending and increasing its productivity. Additionally, it prevents the organization from unnecessarily increasing the budget every year. If zero-base budgeting is completed correctly an organization can have sudden results. For instance, during the 2008 recession, many companies had to reposition management and lay off thousands of employees. As a result, many companies began utilizing the zero-base budgeting method and began to receive increasing turn around rates. For example, private entities such as Xerox and Texas Instruments began utilizing zero-base budgeting. The organizations analyzed the budgets and eliminated wasteful spending. The end results were remarkable. In fact, both companies were able to receive a profit increase of about 60% (O’brien, 2010). Zero-base budgeting can be successful for any organization, if they are willing to put forth an
I attended the Saturday Lab 1 session discussing the Denison Specialty Hospital case study. In our session, we had a through discussion into the different budget terminology. I learned about the difference between accrual and cash accounting methods, which is based on the timing of when the revenue and expenses are recognized. I also learned about responsibility centers as an organizational unit under the supervision of a manager, who is responsible for its activities and results. In addition, the manager is accountable for the budget of the department that they head. Therefore, a centralized form of management in developing the budget because it makes easier to because the information for the department budget is located
Budgeting is a familiar term to most American families. Dictionary.com defines budgeting as an estimate, often itemized, of expected income and expense for a given period in the future. In order to avoid debt, bankruptcy, or overspending it is common to create a spreadsheet of some sort tracking your spending and income. On a grander scheme, the Unites States has to budget as well.
Preston, AM. Cooper, DJ. Coombs, RW (1992) ‘Fabricating budgets: A study of the production of management budgeting in the NHS’, Accounting, Organisations and Society Vol 17, No 6 pp 561-93
Portfolio Theory is a way of budgeting that entails organizing budget activities into portfolios and comparing portfolios with each other in order to maximize utility. By creating portfolios, budget activities are not simply evaluated on their own merits, but also by how they interact with each other. A weighted average of expected returns provides the overall return of the portfolio, while examining the covariance of the activities in the portfolio shows the overall variance or risk that the portfolio has. By understanding the constraints and following particular rules, you can arrive at the best possible portfolio which will determine the best possible budget (Khan, 2002).
Budgets are the financial requirements and consequences of plans. Budgets are made with specific goals in mind. Budgets can be used to lower living expenses, increase savings, or to save for a purpose such as: education or retirement. Budgeting is a process that involves these actions: defining goals, gathering information, forming expectations, reconciling goals and data, monitoring goals and variances, adjusting budgets, and redefining goals.
Budgets Budgeting must be tied to the mission of the organization. The leadership can look at past trends through accounting and see trends of where revenue comes from and from what sources. Leadership can then approve a budget that can be justified by the past and that will take the organization to the destination that the mission promises. Tweaks along the way will help keep things on course. Just as a ship moves toward a destination, storms and errors can move it off course.
(Cronkhite, 2013) All organization requires specific planning and a clear understanding of the organization object. (McHatton, Bradshaw, Gallagher, & Reeves, 2011) With the budgeting which ensures that the funds necessary to carry out the organizational activities and once the budget is approve operational activities are conducted within the approved plan. (Cronkhite, 2013) The Capital budget contains large items since as location or a new building. (Cronkhite, 2013) This type of budgeting is done until the organization or project is complete. (Cronkhite, 2013) Line item budget is those items that are needed yearly in order to the organization to operate. (Cronkhite, 2013) This includes employee salaries all the way down to office basic stationery. (Cronkhite, 2013) The budgeting process is not something that is done once a year; it is a continual process of regular review and in some case possible for revision. (Cronkhite, 2013) In some case a zero based budgeting comes into play. This type of budgeting is also known as the “died of its own weight”. (Cronkhite, 2013) This is only done if there is a reduction in the organization by at 5%, 10% or 20% on how the essential programs would continue to function. (Cronkhite,
A company's budget serves as a guideline in planning and committing costs in order to meet tactical and strategic goals. Tactical goals such as providing budgetary costs for daily operations, and strategic objectives that include R&D, production, marketing, and distribution are all part of the budgeting process. Serving as a guideline rather than being set in stone, the budget is a snapshot of manager's "best thinking at the time it is prepared." (Marshall, 2003, p.496) The budget is a method in which to reign-in discretionary spending, and will likely show variances between what costs have been anticipated and what costs are actually incurred.
Participative Budgeting is the situation in which budgets are designed and set after input from subordinate managers, instead of merely being imposed. The idea behind this sort of budgeting is to assign responsibility to subordinate managers and place a form of personal ownership on the final budget. Nearly two decades of management accounting research has resulted in equivocal findings on the consequences and effects of participative budgeting (Lindquist 1995). Participative budgeting certainly has various advantages, these include the transferral of information from subordinate to superior increased job satisfaction for the subordinate, budgetary responsibility and goal congruence. Its disadvantages include budgetary slack and negative motivation, however it is the conditions in which participative budgeting takes place determines whether the budgeting process is successful. The conditions are dependent on various factors such as the level of participation, level of subordinate influence, the extent to which budgetary slack takes place, volatility, job related information, and the complexity of the budget.
Seldom is a business going to be successful without using proper managerial tools to evaluate how the business is performing. At the most basic level, every business needs to prepare an annual budget. A budget is often used as a road map, outlining the organization's performance objectives for a given period of time. Defining Budget vs Actual Variance Analysis
Balance the Budget Balancing the budget for the United States is a challenge for policymakers because there are very difficult decisions that must be made that can directly affect United States citizens. After completing the simulator for balancing the budget, I now realize the difficulty that is associated with balancing the budget. The decisions are difficult because no matter what cuts you are making the budget your decision is going to deprive a group of people or an agency of essential funds to their existence. Raising taxes, while trying to balance the budget, creates a problem because the ramifications of these taxes can also affect specific groups.
Capital budgeting is one of the primary activities of a company. Most of the company uses capital budgeting for decision making process of selecting and evaluating long-term investment. The company have to make a right decision with respect to investment in fixed asset such as purchasing of new equipment and delivery vehicles, constructing additions to buildings and many more. The decision must be right because of the project involve huge amount of cash outflow and it is committed for many years.
Budget is combining your income and expenses to decide how much money you are going to spend on an item. Budget is an important step to determine your financial health and financial stability. It’s an important financial tool because it can help plan for expenses, cut cost were unneeded, save for future goals, plan for emergencies that occur inexpediently, and list what you are spending and saving.
It requires an adequate and sound organizational structure, that is, there must be a definite assignment of responsibility for each function of the enterprise. Budgeting compels all the members of management, from the top to bottom to participate in the establishment of goals and plans. Budgeting compels departmental managers to make plans in harmony with the other departments and of the entire enterprise. Budgeting helps the management to put down in figures what is necessary for a satisfactory performance. Budgeting helps the management to plan for the most economical use of labor, material and capital. Budgeting tends to remove the cloud of uncertainty that exists in many organizations, especially among lower levels of management, relative to basic policies and objectives. Budgeting promotes an understanding among members of management of their co-workers' problems. Budgeting force management to give adequate attention to the effects of general business conditions. Budgeting aids in obtaining bank credit as banks commonly require a projection of future operations and cash flows to support
The national budget is the main instrument through which governments collect resources from the economy, in a sufficient and appropriate manner; and allocate and use those resources responsively, efficiently and effectively (Todorovic & Djordjevic, 2009). The work of public budget has increased extremely more complicated, abstruse and worrying (Hou, 2006, p.730).