1 administrative office management, 8/e by zane quible ©2005 pearson education, inc. pearson...

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Administrative Office Management, 8/eby Zane Quible

©2005 Pearson Education, Inc.Pearson Prentice HallUpper Saddle River, NJ 07458

Budgetary and Cost ControlBudgetary and Cost Control

Chapter 25Chapter 25

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Budgeting Is a planning process.

BudgetaryControl

Is the process of regulating the operatingbudgets of the organization.

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Purposes of BudgetingPurposes of Budgeting

Helps ensure the organization’s operations are performed more efficiently.

Helps management maintain the cost- effectiveness of the organization’s operations.

Helps the organization better plan for the future.

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Advantages of Budgeting(1 of 2)


1. It requires adequate management consideration of the organization’s policies.

2. It requires that department-level managers develop practices that facilitate the attain- ment of budgetary goals.

3. It requires that managers identify the resources necessary for accomplishing the organization’s goals.

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4. It helps management make accurate, timely decisions regarding various organizational operations.

5. It helps management determine which functions are not operating efficiently.

6. It helps management determine which functions are experiencing difficulty in achieving goals and objectives.

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Limitations of BudgetingLimitations of Budgeting

1. Because budgeting is based on estimates, the validity of the budget is, to a large extent, determined by the accuracy with which the estimates are made.2. The operating effectiveness of an organization is clearly dependent upon how well management is able to motivate employees to operate within the budgeted allowances.3. The effectiveness of the budget is, to a large extent, dependent upon the accuracy with which budget revisions are made.

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Prerequisites for Successful BudgetingPrerequisites for Successful Budgeting

Proper Organization

Financial Data

Commitment of Top Management

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Proper Organization

Requires the presence of these characteristics: 1. The proper group of tasks within functions, definitive lines of authority, and areas of responsibility.2. Definitive lines of authority and areas of responsibility.3. Lines of communication.

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Financial Data

Unless needed data are available, the basis for budgetdevelopment does not exist.Types of financial data needed:

1. Number of units sold during the previous financial period.2. The relationship between the number of units sold and the cost incurred in producing these units.3. Emerging financial trends.

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Commitment of Top Management

For the process to work well, managementmust be committed to the use of the

budget as a control mechanism.

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Elements of Budget PreparationElements of Budget Preparation

Determining the Budget Period

Developing the Budget

Revising the Budget

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Determining the Budget Period

Involves determining the length of the period, which generally coincides with the organization’s fiscal period.

Length should be sufficiently long to compensate for any seasonal fluctuations.

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Developing the Budget

Two types of budgets:

Departmental Budget

Master Budget

Is a unit budget.

Is a composite of unit budgets.

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Responsibility for Budget PreparationMust Be Assigned

Responsibility for Budget PreparationMust Be Assigned

In larger organizations, it is often the responsibility of the controller or treasurer.

In other organizations, it is often the responsibility of the vice president who is concerned with the organization’s financial areas.

A budget committee is also involved in many instances.

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Types of Office Costs(1 of 2)


Fixed CostsCosts that remain constant regardless of the number ofunits produced.

Rent, insurance, and taxes are examples.

Variable CostsCosts vary proportionately inrelation to the output levels.

Materials and supplies are examples.

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SemivariableCosts

Costs increase as productionincreases but not in a directproportion to productionincreases.

Photocopier charges are an example.

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Guiding Principles of Budget PreparationGuiding Principles of Budget Preparation

1. Employee participation in budget preparation is advantageous.2. Budget should reflect realistic estimates of operating costs.3. Budget must provide for unforeseen circumstances.4. Employees should feel committed to the budget.

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Revising the BudgetRevising the Budget

Is generally required because of uncontrolled orunforeseen circumstances that require theexpenditure of the organization’s financialresources.

Techniques for Revising the Budget

Techniques for Revising the Budget

Periodic reviewProgressive review

Moving review

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Periodic Review

Budget is revised at predetermined times for the remainder of the year.

Budget can be reviewed every month, every two months, every quarter, etc.

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Progressive Review

Uses standard time spans, perhaps 6 months.

Involves revising the budget at specified times and for a constant length of time.

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Moving Review

Budget is revised every month.

As one month is completed, the same month for the next year is included in the revision.

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Zero-Based Budgeting(1 of 2)

Is a budgeting concept that requires the re- evaluation of every program and expenditure each time a year’s budget is prepared.

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Zero-Based Budgeting(2 of 2)

Involves these steps: 1. Describe each discrete organizational activity in a decision package.

2. Evaluate and rank these decision packages in terms of a cost-benefit analysis.3. Allocate resources on the basis of need.

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Guidelines to Follow When PreparingBudget Reports

Guidelines to Follow When PreparingBudget Reports

1. Exception situations should be pointed out.2. When presenting figures in a report, a comparison base should be given.3. To assist the reader, information should be summarized whenever possible.4. When appropriate, reports should include interpretative information.5. Reports should be standardized as much as possible.

Preparing the budget report is a frequentpart of budgetary control.

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Common Sections of Budget Reports

Purpose of the Report

Presentation of Financial Data

Summary

Conclusions

Recommendations

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Cost Control

Is concerned with the expenses incurred in performing various office operations.

Is also concerned with keeping expenditures as low as possible.

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Objectives of Cost Control

1. To develop standard costs for various office operations.2. To develop, within the employees, a desire to be cost conscious.3. To assist in the development of efficient operating procedures.4. To allocate the costs of operations to the appropriate functions.5. To identify inefficient operations.

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Techniques for Controlling Office Costs

Standard Breakdowns

Standard Costs

Cost Analysis Studies

Taking Corrective Action

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Cost Breakdowns

This technique involves determining what percentage of the total cost of an operation is classified as a salary or a labor cost, for example.

Includes Several CategoriesIncludes Several Categories

SalariesSupplies and/or Materials

Overhead

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Standard Costs

This technique involves determining the unit costs of various office operations.

Once the unit cost is determined, it can be compared with comparable standard costs.

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Cost Analysis Studies

This technique involves comparing the cost of a current period’s operations with those of a prior period.

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Taking Corrective Action

When analysis indicates that corrective action is necessary, those in positions of responsibility must take corrective action.

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Areas for Which Office Costs Canand Should Be Controlled

Areas for Which Office Costs Canand Should Be Controlled

PersonnelSupplies and Materials

EquipmentWork Processes

Overhead

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Personnel

The cost of personnel is likely to be thelargest budget item; therefore, personnelcosts provide greater flexibility than doother areas.

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Supplies and Materials Costs

This involves keeping supplies and materials costs to a minimum, minimizing the number of different forms used, and using equipment that facilitates the interchange of supplies.

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Equipment Costs

This involves purchasing reliable equipment as well as the early trade-off of equipment that has higher-than-average repair charges.

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Work Process Costs

Special attention should be devoted to developing efficient work processes.

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Overhead Costs

Because some overhead costs are variable, controlling them should be a conscious effort of employees.

1 administrative office management, 8/e by zane quible ©2005 pearson education, inc. pearson...

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management slide

zane quible

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purposes of budgeting

limitations of budgeting

organizations operations

organizations goals