Ferguson & Son Manufacturing Company's Budgetary Control

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Problems in Ferguson & Son Manufacturing Company's budgetary control:
Budgetary control is a tool used by the management of the company for both planning and controlling. Planning is crucial in this case, which has to consider all strength and weakness so that company can achieve its success as per the plan. In case of Ferguson & Son manufacturing company the budgeted values are compared directly with the actual values. The company has the practice to make comparison with the fixed budgeted values with the actual budgets without any flexibility that is there is no consideration about the current scenario. As mentioned earlier, a planning process involves an in-depth analysis about all the circumstances so that the company can achieve them. In this case, the inflexibility present in the fixed budget added more trouble to the employee’s of the company. This behavior resulted in employees to consider that the company is concerned only about money and not about the quantity of goods that were produced by them. Generally, inflexible budget add more pressure to the employees as the company will be concerned only about the profitability at any point.

For instance, if the company has set aside the target of producing 2,500 units with fixed cost amounting $30,000 and variable cost of $70,000. The total budgeted cost for producing the 2,500 units is $100,000 ($30,000 fixed costs + $70,000 variable cost). In this case, of Ferguson & Son manufacturing company will just look into the actual costs incurred for the production and will be compared with the budgeted costs. In this case, the quantity produced will be ignored for comparison, if in case the total cost incurred is $110,000 but produced 2,900 units, the company will mention that the ...

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