Question

Q1. What role does the accounting department play (or what role should it play) in the budgeting process? In the end, who is ultimately responsible for the budget, anyway? Instead of the president of the company, would it be more effective if the budgeting committee as a whole was responsible for the budget?

Q2. Who should represent the various departments in the budget committee? What are the roles of these individuals?

Answer 1

Q1.

Budget is a systematic financial plan or target for execution of work. The primary thinking of management is to know how the business is going. Budget helps to understand such thing when it is compared with actual. Accounts department plays an important role in budgeting.

Roles:

1) Planning: Budget helps to make definite plan for future; therefore, it creates objectivity. Suppose the firm wants to make 25% more profit out of future activities. It also make plan in which ways funds would be utilized.

2) Prediction analysis: Accounts department used to take few assumptions on budgets. These could be analyzed in few periods whether those assumptions or prediction are going into right track or not. Suppose the prediction of future market improves from the last period.

3) Performance: Actual data when compared with budget gives meaningful review of performance; suppose there is unfavorable direct labor cost variance, because the actual cost is higher than budgeted.

4) Bottlenecks: Budget helps to understand why a particular activity becomes unsuccessful; therefore, this is the act of removing obstacles by the accounts department.

5) Scarcity of resources: Since the resources (land, labor, capital, and organization) are limited proper plan-wise budget is very necessary. It gives exact allocation of resources so that the best result could be achieved without any wastage, which is done by accounts department.

Responsibility: Top management (like managing director, president, etc) is responsible for budget.

Effective: Yes; this is the most effective way. Since such committee is formed, it is assumed that capable and efficient persons are in the act of budgeting.

Q2.

The middle level management (like departmental heads, managers, etc) should represent in the committee. Since they are in direct touch of work, they can give better picture of budget which is more relevant.

Roles: Their roles are to present time-oriented information in the budget like, market price of materials, labor problem and supply of labor, market sentiment, etc.