#1 Joe Julian
WednesdayJun 21 at 1:02am
Manage Discussion Entry
Many of us have some type of budget, whether it is how much money we spend when dining out, or even something simple like how much money we should spend around the holidays. Of course as humans we want the best things, but sadly money doesn’t grow on trees so we have to manage our money, watch what we buy, and set budgets on certain things. According to Wainwright, “Budgets are detailed financial plans that quantify future expectations and actions. These expectations and actions relate to numerous facets of business, including planned sales, staffing needs, acquisition of materials to support production, financing, and expenditures for plant assets” (Wainwright, 2012. Sec. 6.1, Para. 1). What Wainwright is saying is that budgets are used when thinking about future plans and actions that may happen like planned sales, staffing needs, and financing. I am not good with money, but I even have my own budget when it comes to buying things like video games. It may sound foolish but the game will be around for a while and when the price drops I usually get the game or find a place that is selling it cheaper. Wainwright continues to say, “Budgets are important in proper control of all facets of business operation” (Wainwright, 2012. Sec. 6.1, Para. 1). What Wainwright is saying is that budgets are important when looking at every side of the business deal. It is good to look at every angle to see if the business is functioning well, and if it is you may catch the eyes of investors or creditors that want to invest in the business; not to mention if your business knows how to budget well you may find yourself in a possible partnership with another business.
The main difference that I noticed between a static budget and a fixed budget is how they are planned. With a static budget it is usually planned in advance based on previous budgets. In other words, if the budget that you set was over the limit or under the limit, you would plan how the budget would be for the next month or even year. With a flexible budget you can adjust or adapt to changes in the company or business. In other words, if the budget is under then you can adjust and fix it buy making the budget higher then what it was the previous month or year.
Even though I think adapting to change is very important, I don’t think that a flexible budget is always the best choice. Like I mentioned above, if the budget is low then it can be set higher the next month or year, but what if the company or business doesn’t have accurate numbers. This can be stressful and even problematic if the budget isn’t accurate because then the company/business will have difficulties when it comes to settling what costs and revenue they have. If they have more money and didn’t make enough sells, then where did that extra money come from and what are they going to do with it. The same can be said if the company/business was under budget as well. Why weren’t more sells made and where did the money go. This may just be me, but I would prefer a static budget over a flexible budget when it comes time to open up my business because you can expect or even guess what the budget will be when looking at previous budgets.
I would recommend a flexible budget if you feel comfortable enough using it. What I mean by this is if you go out to a restaurant and have a certain budget set, you should bring a little more money because you never know what everyone will order. In terms of business, a flexible budget could come in handy when certain items or inventory are selling better than others; if that item’s sells start to decline then you can adjust accordingly to the situation.
We all want the best and newest things, why do you think that many of us go and get new Iphones when they come out. Without a budget then we would be spending money like crazy and if we happen to own a business then that could mean not having enough money for inventory or repairs of certain items, which could cause the business to start declining. Even though we want the best and newest items a good way to think is, Do I want this item or Do I need it?
Reference:
Wainwright, S. K. (Ed.) (2012). Principles of Accounting: Volume II [Electronic version]. Retrieved from https://content.ashford.edu/Links to an external site.
#2 Lauralee Beans
WednesdayJun 21 at 6:29am
Manage Discussion Entry
“A flexible budget can be prepared either before or after actual production is known. Preparing a flexible budget “after the fact” may help explain variances and aid in performance evaluation, but it does little to facilitate corporate planning. For planning purposes, it is better to prepare the flexible budget (or a financial model of the anticipated outcomes) in advance.” (Wainwright, 2012).
“The Static budget was developed for a single level of activity. A shortcoming of this approach is that it is insensitive to volume fluctuations. This presents special challenges for managing a business and for performance evaluation. As actual output varies from the anticipated level, significant deviations in revenues and expenses will naturally occur. These variances can produce quite misleading signals.” (Wainwright, 2012).
I believe that a flexible budget would be best because you are able to adjust things throughout if there is an increase in demand for a product and things of that sort. A static budget is something that is set and isn’t flexible with demands.
#3Selene Million
WednesdayJun 21 at 9:39am
Manage Discussion Entry
“Standards are the predetermined expectations about the inputs that will berequired to achieve anticipated output. For a manufacturer, inputs generallyrelate to the factors of production, namely materials, labor, and overhead.Output is usually (but not always) the product or service that is to be delivered toa customer. Standard costs express a measure of what the factors of productionshould cost” (Wainwright, 2012). Without standards, there is no base line for predictions or comparability.
Many organizations that use the method of comparing current results with actual results of previous accounting periods are likely to encounter problems. Especially if industry costs are constantly changing. If the only information used to set the standards for the current accounting period is the data from the previous accounting period, there will be problems. There has to be other data considered when making these predictions.
There are many other variables that need to be considered, such as, labor variances, material cost variances, overhead variances, quantity variances and volume variances.
For many companies, these amounts will change on a very regular basis and there needs to be allowances for these changes to stay competitive in the current marketplace. A company could find themselves in real financial trouble if they only rely upon data from the previous reported accounting cycle.
References:
Wainwright, S. K. (Ed.) (2012). (Links to an external site.)Links to an external site.Links to an external site.Principles of accounting: Volume II [Electronic version]. Retrieved fromhttps://content.ashford.eduLinks to an external site.
#4Dee Dee Uranga
WednesdayJun 21 at 2:04pm
Manage Discussion Entry
Standard costs allow an organization to compare the actual results to previous results. I could see how this could prepare a business based on what the previous results were and give them something to start with.
For example, an organization sells flags at the Independence Day parade. A number of flags sold the year before could give the organization an idea of how many they may need. The problem with the standard cost method is that if the city is a military community, then the population may have changed. The population factor is significant to the results that may happen in a given year. There are factors that change in the economy that will affect the actual costs versus the historical costs. The performance will change based on the population change. There could be more flags and more labor needed to sell them to the increase in population.
What if another organization decides to give away flags during the parade? The historical results are that there was a parade and that flags were sold. The standard cost is a good start but does not take into account any changes that have been made between the past results and the actual results.
Another economic change that needs to be considered is tax and wage increases. If there is an increase in minimum wage, then the actual costs will be higher than the historical. Organizations must account for the increased costs of labor compared to previous accounting periods.
The materials used by the organizations would also be inaccurate and could cost the organization. If the cost of materials increase, that would not be recorded under the standard cost system. The clear intention is to record the raw materials inventory at the standard price, regardless of the actual price (Wainwright, 2012). An increase or decrease would not be recorded, and that does not account for the actual prices. Labor usage is the same way and can be misleading when comparing results.
V/R,
Dee Dee Uranga
References
Wainwright, S. K. (Ed.) (2012). Principles of Accounting: Volume II [Electronic version]. Retrieved from https://content.ashford.edu
