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Discussion 1:

1. Small projects that incur setup fees should be incorporated into the flexible budget, and execution should not be lowered to cover these additional expenditures. Managers should be able to engage actively during business operations. The managers will value the operational budget because of this methodology. In spite that investment must be approved, expenditure must be regular to achieve the highest level of administrative proficiency. When the spending plan is met, this should be a good thing to reduce the budget. Budget objectives should not be rendered more stringent for divisions when earlier budgeted targets were not met. Before evaluating the goals, many perspectives such as asset utilization economy, idle time and dullness in the workplace, and departmental leader perspectives should be addressed. It’s not always realistic to make objectives more difficult only to increase benefit.
2. There should be job satisfaction that balance displayed in the figure so that there is no pressure to reduce production costs too far and allow assurance expenses spiral out of control. While putting together and the budget, active collaboration between several departments must be kept in mind. Carelessness on the part of one department to reach its revenue goals should be treated seriously. Upkeep should be compensated in some way to keep goods costs down while also lowering unavailability. Hence some measure of rest time should be included in their performance metrics. Lastly, the system should not have a little emphasis. It should never be a surprising metric that makes the team appear awful. Rather than punishing and humiliating managers, budget meetings should encourage them to improve their performance and seek expense measures without sacrificing performance.

References: Noreen, 5e, Managerial Accounting, Pg 456, Case 8-32, Evaluating a Company’s Budget Procedures

Discussion 2:

Identify the problems that appear to exist in Ferguson & Son Manufacturing Company´s budgetary control system and explain how the problems are likely to reduce the effectiveness of the system. In my opinion, Ferguson & son manufacturing company’s focus on reducing the budget by tightening is the biggest problem that affects many categories in the company. This reduction may affect employee’s morale and work ethics due to no job satisfaction and regular bonus to show the employee’s hard work. By reducing the budget even when the work is companies’ satisfactory level can demotivate employees not to perform their best due to no appreciation for hard work. There may be instances where employees want to quit the company and find another opportunity when offered, affecting the company even in production and sales. For example, if a senior member such as tom feels that the company is not appreciating his efforts rather received the worst evaluation may affect the company because newly hired members do not have the experience to handle difficult situations such as tom.

Explain how Ferguson & Son Manufacturing Company´s budgetary control system could be revised to improve its effectiveness.

I would argue that rather than reducing the budget, decrease the workforce and appreciate the limited budget among the employees, such as giving bonuses regularly based on the employee’s hard work. Another solution is to reduce the production wastage and efficiently utilize the material available which can be saved and help in maintaining the budget. Rather than forcing on employee’s budget utilizing limited resources by efficiently using them can be a great way in such scenarios.

Reference:

Managerial Accounting for Managers, 5th Edition by Eric Noreen and Peter Brewer and Ray Garrison