Behavioural aspects of budgeting Flashcards
What is responsibility accounting?
Managers should account for the costs and revenues for which they have responsibility.
Responsibility accounting means manager should only be appraised on cost they can control
Controllable costs are course that can be influenced by the budget holder. for example, variable or directly attributable fixed costs
Uncontrollable costs are cost that cannot be influenced. For example allocations from head office or rental charges.
Manager manager manager should always compare performance against a flex budget
What is feedback control?
To correct problems that have been discovered at the end of a period when the actual results are compared to budget
The aim is to stop the problem re erring and therefore is a REACTIVE system of control
What is feedforward control?
Hey Amy is to anticipate problems with the aim of preventing them from occurring.
Compares results that are currently expected in the light of the latest information
This is a PROACTIVE system of control
Two types of participation in budget setting
Top down (imposed)
Told what the budget is
- Quicker
- Better for goal congregance
- Avoids budgetary slack
Bottom up (participative)
Coworkers set budget
- Better decisions as better local expertise
- Motivates as staff feel involved and empowered
- Budgets are more achievable
What needs to happen for a budget have influence on performance?
- Staff must be aware of his existence and committed to achieving it
- Must be set to the right level of difficulty
-Tough but attainable
Potential ethical implications in setting budgets
- conflicting objectives, budget holder and setter
- Undue pressure may cause an ethical practices to achieve targets
- Force representation of results
