Question

Why should each department participate in preparing its own budget? How much control do you think each department should have? Does your answer differ for when considering a service firm versus a manufacturing firm? Please answer in 350 words or more. Please add examples

Answer 1

ONLY THE INDIVIDUAL DEPARTMENT WILL EXPERIENCE SHORTAGES/ EXCESSES DURING ACTUAL OPERATIONS TO BE QUALIFIED TO STATE ESTIMATIONS FOR A BUDGET. FOR EXAMPLE HOW COULD AN ACCOUNTANT BE IN A POSITION TO STATE THE RAW MATERIAL CONTENT (CEMENT) IN A CEMENT BLOCK, IN A CONSTRUCTION INDUSTRY? UNLESS THE ENGINEER GAVE A FORMULA THAT SAY 1000 TONNES HAS AN ESTIMATED 80% CEMENT IN A CEMENT BLOCK? THUS IN CERTAIN INDUSTRIES THERE HAS TO BE PERSONNEL WITH TECHNICAL CAPABILITIES TO BE ABLE TO VOUCH FOR THE BUDGET FIGURES.

THERE SHOULD BE ADEQUATE CONTROL DEPENDING ON THE SENIORITY OF BUDGET HOLDER AND OF COURSE EXPERIENCE IN EVALUATING THE ESTIMATIONS, SO IT DEPENDS ON HOW MUCH THE BUDGET PREPARER / HOLDER IS ABLE TO HANDLE WITH ACCURACY. THUS EVEN THOUGH A PERSON IS TECHNICALLY QUALIFIED BUT NOT SENIOR ENOUGH TO STATE WITH ACCURACY ON THE “VALUE OF WORK CERTIFIED” IN A SET OF CONSTRUCTION ACCOUNTS, IT WILL NOT BE SUFFICIENT FOR THE FIRM TO TAKE THE “PROFIT ESTIMATED” IN A SET OF CONSTRUCTION ACCOUNTS

THE ANSWER DOES NOT DIFFER WHETHER IT IS A SERVICE OR MANUFACTURING FIRM. BUT. IN THE CASE OF MANUFACTURING FIRM THERE MIGHT NEED TO BE TECHNICAL STAFF AVAILABLE TO ESTIMATE SAY WORK IN PROGRESS FOR THE PERCENTAGE OF WORK COMPLETED, AS IT IS ONLY THE TECHNICAL STAFF WHO COULD SAY THIS WITH ASSURANCE

WHEREAS IN SERVICE FIRMS THERE NEEDS TO BE QUALIFIED STAFF NOT NECCSESSARLY TECHNICAL IN TERMS OF SAY CHEMICAL OR SCIENTIFIC CALCULATIONS TO BE PERFORMED

FOR EXAMPLE IN A CONSTRUCTION FIRM THERE SHOULD BE A QUALIFIED EXPERIENCED ENGINEER WHO SHOULD BE ABLE TO ASSURE THAT THE WORK IN PROGRESS HAS 100% DIRECT MATERIALS ( SAY CEMENT) AND 85% DIRECT LABOUR ( OF WORKERS WORKING AND OTHER STAFF ON SITE) AND ALSO SAY DIRECT EXPENSES ( HIRE OF MACHINERY FOR PARTICULAR SITE ETC)

IN THE CASE OF SAY BANK WHICH IS A SERVICE ORGANISATION THIS REQUIREMENT IS NOT NECESSARY. THERE IS NO WORK IN PROGRESS. ALSO NO RAW MATERILAS. NOT FINISHED GOODS

SO THESE CALCUALTIONS ARE NOT RELEVANT

THUS IN PREPARING THE BUDGET IN DIFFERENT FIRMS THE AMOUNT OF EXPERIENCE/ SENIORITY OF BUDGET PREPARERS IN CRUCIAL.