Question

1. Identify the problems that appear to exist in Burbage’s budgetary control system and explain how these problems are contributing to the company’s poor cash position.
2. Identify the budgets that Brian and Alex will need to create to resolve these issues, including the information that is needed to construct each budget.
3. Once you have identified the problems and necessary budgets, prepare a report for Don and the rest of the management team outlining your plan for establishing a budgetary control system, making certain to include how each component of the system will benefit the overall financial health of the company.

Answer 1

Answer 1 :

Problems :

• There is no defined standard work team. (Because the CFO & Production managers were fighting to understand the work distribution)
• The data flow in the organization is poor (CFO does not know the consolidated data for the organization)
• The response rate in the organization seems very problematic (No one responded to CFO with there data when it was asked)

Answer 2 :

Following are the budgets that Brian & Alex need to prepare the Master budget for the organization

1. Fixed costs: The first thing is to identify the fixed costs in the organization (Ex: Construction costs, Machinery costs. etc)
2. Variable costs: Once the identification of all the fixed costs is over then they need to identify all the variable costs in the organization (Ex: Employee wages, Raw material costs)
3. Total costs: Sum of fixed costs & variable costs gives the total costs for the organization to be run
4. Identify the sales & selling prices to generate a revenue report for the period  

Answer 3 :

Establishment of Budgetary control systems

To establish the budgetary control systems the following steps to be followed & the benefits of each steps is maintained

1. Budgetary Objective: Defining the objective is an important step in the control system. the objective will help in understanding why & when we require budgetary control systems
2. Organization for budgetary control:  identifying the people & standardizing there work for the controlling of the budget is the second stem this will prevent one from duplication of works & also helps in the clear vision for people for what work they have to do in the control system.
3. Budget centre: this is the place where the budget is prepared. it may be a department or the combination of departments. the budget centres will help in organizing the things in a proper manner
4. Standard operating procedure: having a standard operational procedure help ease of preparation of the budget & also it will give the clearer idea of what all the requirements & the way to process the things.
5. Review management: Once the budget is prepared we should present them to a committee of a higher authority to review the entire things to control the budget. this will help in the future planning for controllers & the preparation team to get an idea of what management accepts from them.
6. Defined Time period: defining the time period for the budget preparation & the review mechanism will help in the systematic approach to the budget & also with the available time the team can prepare for the higher control activities.
7. Database: having a database for historical budget & all the related aspects helps the team in proper control over the repeated mistakes in the costs & in turn helps in proper planning of the savings.

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