Financial Budgeting for Travis PerkinsEssay Preview: Financial Budgeting for Travis PerkinsReport this essayIn the statements made by Johnson and Kaplan explained that corporate accounting management systems are inadequate for todays environment. According to them, in this fast changing environment with advanced technological changes and in the vigorous global and domestic competition and vastly growing information processing capabilities these management accounting systems do not provide timely information for process control, product costing and performance evaluation activity of managers. In todays environment the businesses have become so complex that internal management accounting system are not that accurate. These internal management accounting systems are designed after the world war and it lacks in replacing the pre world war accounting systems. The corporate management accounting systems designed for financial reporting, tax purposes with latest information and accounting purposes. But todays information is not arriving at correct time, too aggregated and too fragmented. Due to this there has been a decrease in productive as it analysis even very small issues to critical issues which normally take a long time. It is also responsible for making wrong decisions in product sourcing, product mixing, product pricing because it relates all the product cost to simple arbitrary measures. The corporate accounting management system has decreased the long term thinking and decreased the long term investments as well. People started to concentrate more on short term monthly profit and loss statements. This does not promote a strong and healthy company for a long period of time which is most essential.
Already many accountants tried to change the standard cost system because it did not give proper information. The standard cost accounting system which we use today is outdated. We have to design a new system which takes into account the latest information and more flexible so that it gives a correct output which will be more accurate and reliable. In a company if they follow the lean principles it helps in maintaining quality and reduce inventories which is a negative according to the current accounting standards. So the new system should also incorporate all these principles within it so that best practices are followed in the system. Operation managers, engineers should also be consulted and their views should be incorporated without any conflicts and with the help of technology it has to be easier to practice in all types of environment.
The solution
With the new approach, in a typical business, the average consumer will save about Rs 2.25. But to create a good business plan for this cost will take a lot of resources.
The solution is the same as our previous approach.
Make changes in the costs of all elements of a business plan. The main changes are:
Reduce the cost and simplify the business plan.
Use cost as the basis for a change in business conditions, thus improving the efficiency of the business.
In case your business does not have clear and precise rules about what the cost of the service could be by using the cost information. Then you need to make change more easily and with fewer complicated steps.
What the experts are saying
“This is a new approach. Many of its solutions are based on one-time cost estimates based on a single calculation. This approach is a more difficult one for the users because many of them have less control in the calculation while, for some, they still have not understood the value. This approach has its difficulties even when using data and not using actual money. Since then, most of the other approaches have not been able to achieve the cost savings required to avoid the major risk and drawbacks associated with this approach. This approach is based on two assumptions. Firstly, it is not cost based and secondly, a small user base to do the calculation in every case. In this case, the users won’t be given adequate information after the use of cost estimates. In the cases where this approach is not the best approach, a user is more concerned with cost (how many people have been using the service).”
Read More (8)
This article is part of our series: This book is about the importance of cost assessment and how it is best to follow it.
Follow us for live updates on our business journey: Follow us on twitter @KGJE