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Cost And Management Accountıng
Cost And Management Accountıng Deneme Sınavı
Cost And Management Accountıng Deneme Sınavı Sorusu #1373910
Cost And Management Accountıng Deneme Sınavı Sorusu #1373910
- Efficient Resource Allocation
- Communication
- Coordination
- Time Management
- Motivation
Which of the above are the benefits resulting from the preparation and use of budgets?
I and II |
II and III |
I, III and IV |
II, III, IV and V |
I, II, III, IV and V |
Yanıt Açıklaması:
There are many benefits that result from the preparation and use of budgets. For example, businesses can better coordinate their activities, employees become more cost conscious and try to conserve resources, the company reviews its organization plan and changes it when necessary, etc. Benefits of budgeting can be explained as follows:
- Efficient Resource Allocation: By preparing the budget, the required amount of all resources to use in operations can be predicted approximately, before the period begins. Therefore, any unnecessary resources in an operation can be transferred to any other operation to full utilization of capacity (Edmonds, et al., 2000: 285). For example, in the case that the company predicts the low volume of production in a product next year, the labors will not fully utilize their capacity next period. By transferring some labor from the production of that product to another (or by not hiring some employees any more), managers may provide full utilization of resources for remaining labors. Unnecessary production and inventory storage can also be prevented by using the sales forecasts for the upcoming period.
- Communication: Once the objectives are determined and the plans are prepared, management should ensure that all subordinates and superiors understand the objectives and the short-term plan. The budgets are used at this point as a communication tool that translates the objectives into action plans for the company as a whole. In other words, working to attain the budgeted targets means implying the short-term plans determined by management.
- Coordination: Since the organization of a company is a chain of operations, any inefficiency in a division affects the whole organization’s success. In other words, the way to reach the organizational goal is made of paths to attain divisional/departmental goals. Thus, all divisions and employees should work in coordination; otherwise, it becomes almost impossible to reach the common objective. This coordination is provided by the budget because the goals of each division and their interrelationships are determined by the budget. In summary, budgets coordinate all divisions to arrange their activities to attain a common objective (Edmonds, et al., 2000: 285). Performance Evaluation: By determining goals for each division, the budget reveals targets for superiors or subordinates to meet during the budget period. When the period ends, these targets are compared with the actual results and performance of managers and employees can be evaluated by considering the deviations from the target. In summary, the budget determines the standards to meet during the period by management.
- Time Management: Comparing the actual results with the targets does not help managers only with evaluating the performance, but also saves their time by identifying current and potential bottlenecks in operations. Management receives the advanced notices of shortages and bottlenecks through the variance analysis, and gain the opportunity to take corrective actions to minimize the anticipated adverse effects for the next period (Edmonds, et al., 2000: 286; Blocher et al., 2010: 365). For example, a manager may realize the need for additional raw materials for the next period and start searching for suppliers with better conditions. If the budget variances on direct (raw) materials had not signed this need, the company would have to purchase the additional materials for higher prices in a short time, when faced with a shortage of the raw material.
- Motivation: Providing reasonable targets to employees motivates them to work efficiently in order to attain the expected results. Because they know what is expected from them; and that the results will be evaluated at the end of the period. Therefore, the primary objective of employees become reaching pre-determined goals, which are determined by management and communicated via budgets.
As also understood from the information given, the correct answer is E. Efficient resource allocation, communication, coordination, time management and motivation are the benefits resulting from the preparation and use of budgets.
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