Finance - Budgeting Assignment Example | Topics and Well Written Essays - 1000 words

Finance - Budgeting - Assignment ExampleA comparison of the actual and cyphered costs should be closely monitored to determine the efficiency of the system in place. If the watercourse proficiency does not always reflect the true cost of operation or reports wide gaps between budgeted and actual costs, a change in technique could be a solution.The company has been employing process be to budget and monitor its various costs. This method is a widely used tool in costing of its products. In order to do this, the company recognizes the following cost poolsThe production budget of the company is set before the production period usually for wiz year. Traditional costing method and variance analysis are used to adjust the varied costs incurred. At the end of each quarter, the company computes the different variances to determine whether the company is above or below the set level. However, no effort is made to correct the budgeted costs.As the size of the company is relatively small, it pre directly doesnt employ any software in order to efficiently track costs. The data for production is gathered for each pool center manually and is sent to each department involved such as purchasing, billing, and inventory.It is as well apparent that the company has no formal monitoring system as the budgets are never adjusted. It should be noted that the price of materials being used by the company often vary with their availability. For instance, the price of LPG is directly related to the price of fuel in the world market. The volatility of the price of fuel is not taken into account as the companys budget is already set for a years period. Recommendations for ImprovementA companys budget as discussed above is one of the most significant information for managers as it reflects its expectations on its future operations. The company under consideration reports declining profitability within the preceding(a) five years. The reported reasons for this are unexpected rise in m aterial inputs which are not anticipated and reflected on pricing and additional costs delinquent to lost of administrative and paper works. The company also admitted that as its competitors seem to be gaining market share through production efficiency, they seem to be fall back off. This is reflected by their declining profits and high production costs. It is recommended that the company reevaluate its value chain. This evaluation is needed in order for them to ascertain the processes which add value to their products and eliminating those which do not. This will lead to a leaner manufacturing system and will surely help the company in cutting down unnecessary costs.The company should also create an information system in order to