管理会计英文讲义 管理会计Session 12 Budgeting

管理会计英文讲义管理会计Session12BudgetingSession12BudgetingMaincontents:1.Forecasting2.Budgeting3.Budgetaryprocess4.Behavioralaspectofbudgeting5.Capitalexpenditurebudgeting6.Methodsofprojectappraisal12.1ForecastingCorrelation:twovariablesaresaidtobecorrelatedifachangeinthevalueofonevariableisaccompaniedbyachangeinthevalueofanothervariable.Thisismeantbycorrelation.Twovariablesmightbeperfectlycorrelated,partlycorrelatedoruncorrelated.-Perfectcorrelation–linearrelationship-Partialcorrelation-NocorrelationThecorrelationcoefficientCorrelationcoefficientr=n∑XY-∑X∑Y√（n∑X2-（∑X）2）（（n∑Y2-（∑Y）2）Thecorrelationcoefficient,r●R=+1meansthatthevariablesareperfectlypositivelycorrelated●R=-1meansthatthevariablesareperfectlynegativelycorrelated●R=0meansthatthevariablesareuncorrelatedExample：Thecostofoutputatafactoryisthoughttodependonthenumberofunitsproduced.Datahavebeencollectedforthenumberofunitsproducedeachmonthinthelastsixmonths,andtheassociatedcosts,areasfollows.MonthOutputCost000ofunits$000XY12923113149441353116515Required:Assesswhetherthereisanycorrelatingcorrelationbetweenoutputandcost?Solution:Correlationcoefficientr=n∑XY-∑X∑Y√（n∑X2-（∑X）2）（（n∑Y2-（∑Y）2）Working:XYXYX2Y22919><>84<>8131133912117><7<71494135216169311339121515<7525225∑X=1<>8∑Y=66∑XY=21<>8∑X2=62∑Y2=<766（∑X）2=（1<>8）2=324（∑Y）2=（66）2=4356N=6r=（6x21<>8）–（1<>8x66）√（6x64-324）x（6x<766-4356）=130<>8-11<>8<>8√（3<>84-324）x（4596-4356）=120=120=120=1√60x240√14400120Thereisperfectpositivecorrelationbetweenthevolumeofoutputatthefactoryandcostswhichmeansthatthereisaperfectlinearrelationshipbetweenoutputandcost.Thecoefficientofdeterminationr2Thecoefficientofdetermination,r2measurestheproportionofthetotalvariationinthevalueofonevariablethatcanbeexplainedbyvariationsinthevalueoftheothervariable.Itdenotesthestrengthofthelinearassociationbetweentwovariables.Linerregressionanalysisisonemethodusedforestimatingalineofbestfit.Onceanequationforalineofbestfithasbeendetermined,forecastscanbemade.FormulatolearnY=a+bxb=n∑XY-∑X∑Yn∑X2-（∑X）2a=∑Y–b∑xnnItrepresentstheregressionofYuponX.Example:（a）UsingthedatabelowforvariableX（output）andY（totalcost）,calculateanequationtodeterminetheexpectedlevelofcosts,foranygivenvolumeofoutput,usingtheleastsquaresmethod.Timeperiod12345Output（000units）201624221<>8Totalcost（$000）<>82<7090<>85<73（b）Prepareabudgetfortotalcostsifoutputis22,000units（c）Confirmthatthedegreeofcorrelationbetweenoutputandcostsishighbycalculatingthecorrelationcoefficient.Solution:（a）WorkingsXYXYX2Y220<>8216404006<72416<7011202564900249021605<76<>810022<>851<>8<704<>84<72251<>8<7313143245329∑X=100∑Y=400∑XY=<>8104∑X2=2040∑Y2=322<7<>8N=5（therearefivepairsofdataforXandYvalues）b=n∑XY-∑X∑Y=（5x<>8104）–（100x400）=2.6n∑X2-（∑X）25x2040-（100）2a=∑Y–b∑x=400-2.6x（100）=2<>8nn55Y=2<>8+2.6xWhereY=totalcost,inthousandsofdollarsX=output,inthousandsofunitsNotethatthefixedcostsare$2<>8,000（whenx=0costsare$2<>8,000）andthevariablecostperunitis$2.60（b）iftheoutputis22,000units,wewouldexpectcoststobe2<>8+2.6x22=<>85.2=$<>85200（c）R=520=520=520=+0.99√200x（5x322<7<>8–400x400√200x139052<7.3●RegressionlinesandtimeseriesThesameregressiontechniquecanbeappliedtocalculatearegressionline（atrendline）foratimeseries.Thisisparticularlyusefulforpurposesofforecasting.Aswithcorrelation,yearscanbenumberedfrom0upwards.Atimeseriesisaseriesoffiguresorvaluesrecordedovertime.Therearefourcomponentsofatimeseries:trend,seasonalvariations,cyclicalvariationsandrandomvariations.●FindthetrendbymovingaverageMovingaverageisanaverageoftheresultsofafixednumberofperiods.Sinceititanaverageofseveraltimeperiods,itisrelatedtothemid-pointoftheoverallperiod.Example:YearSalesunit20X039020X13<>8020X246020X345020X44<7020X544020X6500Task:Takeamovingaverageoftheannualsalesoveraperiodofthreeyears.Solution:（a）averagesalesinthethreeyearperiod20x0-20x2were（390+3<>80+460）=1230=41033Thisaveragerelatestothemiddleyearoftheperiod,20x1（b）Similarly,averagesalesinthethreeyearperiod20x1-20x3were（3<>80+460+450）=1290=43033Thisaveragerelatestothemiddleyearoftheperiod,20x2.（c）Theaveragesalescanalsobefoundfortheperiod20x2-20x4,20x3-20x5,and20x4–20x6,togivethefollowingYearSalesunitMovingtotalof3years’totalMovingaverageof3years’total20X0390-20X13<>80123041020X2460129043020X345013<>8046020X44<70136045320X544014104<7020X6500Themovingaverageserieshasfivefiguresrelatingtotheyearsfrom20x1to20x5.Theoriginalserieshadsevenfiguresfortheyearsfrom20x0to20x6.Thereisanupwardtrendinsales.Onceatrendhasbeenestablished,wecanfindtheseasonalvariations.Thedifferencebetweentheactualresultsforanyonequarterandthetrendfigureforthatquarterwillbetheseasonalvariationforthatquarter.Example：Thefollowingfourdatapairshavebeenobtained:（1,5）,（2,6）,（4,9）,（5,11）Withoutcarryingoutanycalculations,whichofthefollowingcorrelationcoefficientsbestdescribestherelationshipbetweenxandy?A.-0.9<>8B.-0.25C.0.9<>8D.0.25SolutionisCFromthedatagiven,itisclearthatthecorrelationispositiveandstrong.Thecorrelationcoefficientdescribingapositivestrongrelationshipis0.9<>812.2BudgetingAbudgetisaquantifiedplanofactionforaforthcomingaccountingperiod.Abudgetisaplanofwhattheorganizationisaimingtoachieveandwhatissetasatarget,whereasaforecastisanestimateofwhatislikelytooccurinthefuture.Budgetarycontrolisbasedaroundasystemofbudgetcentres.Eachcentrehasitsownbudgetwhichistheresponsibilityofthebudgetholder.Theobjectivesofabudgetaryplanningandcontrolsystemareasfollows（purposes）●Toensuretheachievementoftheorganization’sobjectives●TocompelplanningIthelpsmanagerstoforeseepotentialthreatsoropportunities,sothattheymaytakeactionnowtoavoidorminimizetheeffectofthethreatsandtotakefulladvantageoftheopportunities●TocommunicateideasandplansCommunicationmightbeone-way,withmanagersgivingorderstosuoridnates,ortheremightbeatwo-waydialogueandexchangeofideas.Aformalsystemisnecessarytoensurethateachpersonaffectedbytheplansisawareofwhatheorsheissupposedtobedoing.●TocoordinateactivitiesThereisoften“sub-optimally”andconflictbetweendepartmentalplansinthebudgetsothattheeffortsofeachdepartmentarenotfullyintegratedintoacombinedplantoachievethecompany’sbesttargets.Theactivitiesofdifferentdepartmentsorsub-unitsoftheorganizationneedtobeCoordinatedtoensuremaximumintegrationofefforttowardscommongoals.●ToprovideaframeworkforresponsibilityaccountingBudgetaryplanningandcontrolsystemsrequirethatmanagersofbudgetcentresaremaderesponsiblefortheachievementofbudgettargetsfortheoperationsundertheirpersonalcontrol.●ToestablishasystemofcontrolControloveractualperformanceisprovidedbythecomparisonofactualresultsagainstthebudgetplan.Departuresfromthebudgetcanthenbeinvestigatedandthereasonsforthedeparturescanbedividedintocontrollableanduncontrollablefactors.●TomotivateemployeestoimprovetheirperformanceTheinterestandcommitmentofemployeescanberetainedviaasystemoffeedbackofactualresults,whichletthemknowhowwellorbadlytheyareperforming.Theidentificationofcontrollablereasonsfordeparturesfromthebudgetwithmanagersresponsibleprovidesanincentiveforimprovingfutureperformance.●ProvideaframeworkforauthorizationOncethebudgethasbeenagreedbythedirectorsandseniormanagersitactsasanauthorizationforeachbudgetholdertoincurthecostsincludedinthebudgetcenter’sbudget.Aslongastheexpenditureisincludedintheformalizedbudget,thebudgetholdercancarryoutdaytodayoperationswithoutneedingtoseekseparateauthorizationforeachitemofexpenditure.●ProvideabasisforperformanceevaluationMonitoringofactualresultscomparedwiththebudgetcanprovideabasisforevaluatingtheperformanceofthebudgetholder.Asaresultofthisevaluationthemanagermightberewarded,perhapswithafinancialbonusorpromotion.Alternatively,theevaluationprocessmighthighlighttheneedformoreinvestmentinStaffdevelopmentandtraining.12.3BudgetaryprocessThebudgetcommitteeisthecoordinatingbodyinthepreparationandadministrationofbudgets.Thebudgetmanualisacollectionofinstructionsgoverningtheresponsibilitiesofpersonsandtheprocedures,formsandrecordsrelatingtothepreparationanduseofbudgetarydata.Budgetmanualcontents: Content Detail Explanationoftheobjectivesofthebudgetingprocess *thepurposeofbudgetaryplanningandcontrol*theobjectivesofthevariousstagesofthebudgetingprocess*Theimportanceofbudgetsinthelong-termplanningandadministrationoftheenterprise Organizationalstructure *Anorganizationchart*Alistofindividualsholdingbudgetresponsibilities Outlineoftheprinciplebudgets *Relationshipbetweenthem Administrativedetails *Membership,andtermsofreference,ofthebudgetcommittee*Thesequenceinwhichbudgetsaretobeprepared*Atimetable Proceduralmatters *Specimenformsandinstructionsforcompletingthem*Specimenreports*Accountcodes（orachartofaccounts）*ThenameofthebudgetofficertowhomenquiriesmustbesentBudgetpreparationprocess:-Communicatingdetailsofthebudgetpolicyandbudgetguidelines-Determiningthefactorthatrestrictsoutput-Preparationofthesalesbudget-Initialpreparationofbudgets-Negotiationofbudgetswithsuperiors-Co-ordinationandreviewofbudgets-Finalacceptanceofthebudgets-BudgetreviewTheprincipalbudgetfactorTheprincipalbudgetfactorshouldbeidentifiedatthebeginningofthebudgetaryprocess,andthebudgetforthisispreparedbeforealltheothers.Thefirsttaskinthebudgetaryprocessistoidentifytheprincipalbudgetfactor.Thisisalsoknownasthekeybudgetfactororlimitingbudgetfactor.Therefore,theprincipalbudgetfactoristhefactorwhichlimitstheactivitiesofanorganization.Theprincipalbudgetfactorisusuallysalesdemand.Otherpossiblefactors:●Machinecapacity●Distributionandsellingresources●Theavailabilityofkeyrawmaterials●TheavailabilityofcashOncethisfactorisdefinedthentheremainderofthebudgetscanbeprepared.Forexample,ifsalesaretheprincipalbudgetfactorthentheproductionmanagercanonlypreparehisbudgetafterthesalesbudgetiscomplete.Managementmaynotknowwhatthelimitingbudgetfactorisuntiladraftbudgethasbeenattempted.Thefirstdraftbudgetwillthereforeusuallybeginwiththepreparationofdraftsalesbudget.Thesalesbudget:Wehavealreadyestablishedthat,formanyorganizations,theprincipalbudgetfactorissalesvolume.Thesalesbudgetisthereforeoftentheprimarybudgetfromwhichthemajorityoftheotherbudgetsarederived.Beforethesalesbudgetcanbepreparedssalesforecasthastobemade.Masterbudget:isthesummaryofallthefunctionalbudgets,itoftenincludesasummaryincomestatementandbalancesheet.ProductionandrelatedbudgetsIftheprincipalbudgetfactorwasproductioncapacitythentheproductionbudgetwouldbethefirsttobeprepared.Toassesswhetherproductionistheprincipalbudgetfactor,theproductioncapacityavailablemustbedetermined,takingaccountofanumberoffactors.●Availablelabour,includingidletime,overtimeandstandardoutputratesperhour●Availabilityofrawmaterialsincludingallowanceforlossesduringproduction●Maximummachinehoursavailable,includingexpectedidletimeandexpectedoutputratespermachinehour.Itis,however,normallysalesvolumethatistheconstraintandthereforetheproductionbudgetisusuallypreparedafterthesalesbudgetandthefinishedgoodsinventorybudget.Theproductionbudgetwillshowthequantitiesandcostsforeachproductandwilltieinwiththesalesandinventorybudgets.Thiscoordinatingprocessislikelytoshowanyshortfallsorexcessesincapacityatvarioustimesoverthebudgetperiod.Ifthereislikelytobeashortfallthenconsiderationshouldbegiventohowthiscanbeavoided.Possibleoptionsincludethefollowing:●Overtimeworking●Machinehire●Subcontracting●NewsourcesofrawmaterialsAsignificantshortfallmeansthatproductioncapacityis,infact,thelimitingfactor.Ifcapacityexceedssalesvolumeforalengthoftimetheconsiderationshouldbegiventoproductdiversification,areductioninsellingpricesandsoon.●ThelabourbudgetAstandardhourorstandardminuteistheamountofworkachievableatstandardefficiencylevelsinthattimeperiod.Example1:●Co.manufacturestwoproducts,AandB.ProductAProductBCurrentinventory（units）<>8001200250unitsofBhavebeendiscoveredtohavedeterioratedinqualityandmustthereforebescrapped.ProductAProductBBudgetedsales（units）30004000Thecompanymaintainsfinishedgoodsinventoriesatalevelequaltothreemonths’sales.ProductAProductBLabourhourperunit23Hourlyrate$2.50Indiscussionwithtradeunionnegotiators,ithasbeenagreedthatthehourlywagerateshouldberaisedby50cperhour,providedthattimestoproductAandBarereducedby20%.Required:preparetheproductionbudgetanddirectlabourbudget.Solution:ProductionbudgetProductAProductBUnitsUnitsUnitsUnitsBudgetsales30004000Closinginventories3000x3/12<7504000x3/121000Openinginventories（minusinventoriesscrapped）<>800950Decrease/Increaseininventories（50）50Production29504050DirectlabourbudgetTotalhoursCost2950unitsofA@<>80%x24<720x$3$14,1604050unitsofB@<>80%X39<720x$3$29,16014,440$43,320Example2:directlabourbudgetbasedonstandardhoursAcompanymanufacturesasingleproductQ,withasinglegradeoflabour.Itssalesbudgetandfinishedgoodsininventorybudgetforperiodareasfollows.Sales<700unitsOpeninginventories,finishedgoods50unitsClosinginventories,finishedgoods<70unitsThegoodsareinspectedonlywhenproductionworkiscompleted,anditisbudgetedthat10%offinishedworkwillbescrapped.ThestandarddirectlabourhourcontentofproductQisthreehours.Thebudgetedproductivityratiofordirectlabourisonly<>80%（whichmeansthatlabourisonlyworkingat<>80%efficiency.）Thecompanyemploys1<>8directoperatives,whoareexpectedtoaverage144workinghourseachinperiod3.Required:Prepareaproductionbudget;adirectlabourbudget;commentontheproblemthatyourdirectbudgetreveals,andsuggesthowthisproblemmightbeovercome.Solution:ProductionbudgetUnitsSales<700Addclosinginventory<70Lessopeninginventory（50）Productionrequiredofgoodoutput<720Wastagerate10%Totalproductionrequired<720/90%=<>800unitsDirectlabourbudgetStandardhoursperunit3Totalstandardhoursrequired=<>800unitsx3hours2400hoursProductivityratio<>80%Actualhoursrequired2400/<>80%=3000hoursHoursBudgethoursavailable1<>8operativesx144hours2592Actualhoursrequired3000Shortfallinlabourhours40<>8Thisindicatesthattherewillnotbeenoughdirectlabourhourstomeettheproductionrequirements.Overcominginsufficientlabourhours:●Reducingtheclosinginventoryrequirementbelow<70units.Thiswouldreducethenumberofproductionunitsrequired.●Persuadetheworkforcetodosomeovertimeworking●Perhapsrecruitmoredirectlabouriflong-termprospectsareforhigherproductionvolumes●Improvetheproductivityratio,andsoreducethenumberofhoursrequiredtoproducetheoutput●Ifpossible,reducethewastageratebelow10%.●ThematerialpurchasesbudgetExample3:Xltd.manufacturestwoproducts,SandT,whichusethesamerawmaterials,DandE.OneunitsofSuses3litersofDand4kilosofE.OneunitofTuses5litersofDand2kilosofE.AlitreofDisexpectedtocost$3andakiloofE$<7.Budgetedsalesfor20x2are<>8000unitsofSand6000unitsofT;finishedgoodsininventoryat1January20x2are1500unitsofSand300unitsofT,andthecompanyplanstoholdinventoriesof600unitsofeachproductat31Dec.20x2.Inventoriesofrawmaterialare6000litresofDand2<>800kilosofEat1Jan,andthecompanyplanstohold5000litresand3500kilorespectivelyat31Dec.20x2.Thewarehouseandstoresmanagershavesuggestedthataprovisionshouldbemadefordamagesanddeteriorationofitemsheldinstore,asfollows:ProductS:lossof50unitsProductT:lossof100unitsMaterialD:lossof500litersMaterialE:lossof200kiloRequired:prepareamaterialpurchasesbudgetfortheyear20x2Solution:Tocalculatematerialpurchaserequirements.Itisfirstofallnecessarytocalculatethebudgetedproductionvolumesandmaterialusagerequirements.ProductionbudgetProductSProductTUnitsUnitsUnitsUnitsBudgetsales<>80006000Provisionforloss50100Closinginventories600600Openinginventories1500300Decrease/Increaseininventories（900）300Production<71506400MaterialDMaterialELitersLitersKgKgUsagerequirementsToproduce<7150unitsofS214502<>8600Toproduce6400unitsofT3200012<>800Usagebudget5345041400Provisionforlosses5002005395041600Closinginventories50003500Openinginventories60002<>800Decrease/Increaseininventories（1000）<700Materialpurchasesbudget5295042300MaterialDMaterialECostperunit$3perlitre$<7perKgCostofmaterialpurchases$15<>8<>850$296100Totalpurchasecost$454950FixedbudgetsAfixedbudgetisabudgetwhichisnormallysetpriortothestartofanaccountingperiod,andwhichisnotchangedinresponsetochangesinactivityorcost.Themasterbudgetpreparedbeforethebeginningofthebudgetperiodisknownasthefixedbudget.Theterm”fixed”meansthefollowing:●Thebudgetispreparedonthebasisofanestimatedvolumeofproductionandanestimatedvolumeofsales,butnoplansaremadefortheeventthoseactualvolumesofproductionandsalesmaydifferfrombudgetedvolumes.●Whenactualvolumesofproductionandsalesduringacontrolperiod（monthorfourweeksorquarter）areachieved,afixedbudgetisnotadjusted（inretrospect）torepresentanewtargetforthenewlevelsofactivity.Amajorpurposeofafixedbudgetliesinitsuseattheplanningstage,whenitseekstodefinethebroadobjectivesoftheorganization.FlexedbudgetsComparisonofafixedbudgetwiththeactualresultsforadifferentlevelofactivityisoflittleuseforbudgetarycontrolpurposes.Flexiblebudgetsshouldbeusedtoshowwhatcostandrevenuesshouldhavebeenfortheactuallevelofactivity.Differencesbetweentheflexiblebudgetfiguresandactualresultsarevariances.Aflexiblebudgetisabudgetwhichisdesignedtochangeasvolumeofactivitychanges.Flexiblebudgetsarepreparedusingmarginalcostingandsomixedcostsmustbesplitintotheirfixedandvariablecomponents.Example5:flexiblebudgetThecompanyexpectsproductionandsalesduringthenextyeartobe90%ofthecompany’soutputcapacity,thatis,9000unitsofasingleproduct.Costestimateswillbemadeusingthehigh-lowmethodandthefollowinghistoricalrecordsofcost.Unitsofoutput/salesCostofsales9<>800$44400<7<700$3<>8100Thecompany’smanagementisnotcertainthattheestimateofsalesiscorrect,andhasaskedforflexiblebudgetstobepreparedatoutputandsaleslevelof<>8000and10000units.Thesalespriceperunithasbeenfixedat$5.Required:Prepareappropriatebudgets.Solution:$Totalcostsof9<>800units44400Totalcostsof<7<700units3<>8100Variablecostsof2100units6300Variablecostperunit=$6300/2100units=$3perunit$Totalcostsof9<>800units44400Variablecostsof9<>800units（9<>800unitsx$3）（29400）Fixedcosts15000Thefixedbudgetsandflexiblebudgetscannowbepreparedasfollows:FlexiblebudgetFixedbudgetFlexiblebudget<>8000units9000units10000unitsSales（x$5）400004500050000Variablecost（x$3）240002<700030000Contribution160001<>800020000Fixedcosts150001500015000Profit100030005000FlexiblebudgetsandbudgetarycontrolBudgetarycontrolistocompareactualresultswithabudgetwhichhasbeenflexedtotheactualactivitylevelachieved.Individualmanagers（budgetholders）heldresponsibleforinvestigatingdifferencesbetweenbudgetedandactualresults,andarethenexpectedtotakecorrectiveactionoramendtheplaninthelightofactualevents.Example6:Flowerbudgetedtosell200unitsandproducedthefollowingbudget$$Sales<71400VariablecostsLabour31600Material1260044200Contribution2<7200Fixedcosts1<>8900Profit<>8300Actualsalesturnedouttobe230units,whichweresoldfor$69000.Actualexpenditureonlabourwas$2<7000andonmaterial$24000.Fixedcoststotaled$10000.Required:prepareaflexiblebudgetthatwillbeusefulformanagementcontrolpurposes.Solution:BudgetBudgetFlexedbudgetActualVariance200unitsperunit230units230units$$$$$Sales<7140035<7<>821106900013110AVariablecostsLabour3160015<>8363402<70009340FMaterial126006314490240009510AContribution2<7200136312<>801<>8000Fixedcosts1<>89001<>890010000Profit<>8300123<>80<>800043<>80AReconciliation:$$Fixedbudgetprofit<>8300Variance:Salesvolume40<>80FSellingprice13110ADirectmaterialscosts9510ADirectlabourcosts9340FFixedcosts<>8900F300AActualprofit<>8000Thedifferencebetweentheoriginalbudgetprofitof$<>8300andactualprofitof$<>8000isthetotaloffollowing:▼Thesavinginresourcecosts/lowerthanexpectedsalesrevenue（anetof$43<>80asindicatedbydifferencebetweentheflexiblebudgetandtheactualresults）▼Theeffectofproducingandselling230unitsinsteadof200units（againof$40<>80asindicatedbythedifferencebetweenthefixedbudgetandtheflexiblebudget）Thisisthesalesvolumecontributionvariance.12.4BehavioralaspectsofbudgetingTherearetwobasicallytwowaysinwhichabudgetcanbeset：fromthetopdown（imposedbudget）orfromthebottomup（participatorybudget）Athirdtypereferstoathirdstyle（negotiated）●Imposedstyleofbudgeting,thetopmanagementprepareabudgetwithlittleornoinputfromoperatingpersonnelwhichisthenimposedupontheemployeeswhohavetoworktothebudgetedfigures.Thetimeswhenimposedbudgetsareeffective（a）Innewlyformedorganization（b）Inverysmallbusinesses（c）Duringperiodsofeconomichardship（d）Whenoperationalmanagerslackbudgetingskills（e）Whentheorganization’sdifferentunitsrequireprecisecoordination●Participativestyleofbudgeting,budgetsaredevelopedbylower-levelmanagerswhothensubmitthebudgetstotheirsuperiors.Thebudgetsarebasedonlower-levelmanagers’perceptionofwhatisachievedandtheassociatednecessaryresources.●NegotiatedstyleofbudgetingFinalbudgetsarethereforemostlikelytoliebetweenwhattopmanagementwouldreallylikeandwhatjuniormanagementsbelieveisfeasible.Thebudgetingprocessishenceabargainingprocessanditisthisbargainingwhichisofvitalimportance,determiningwhetherthebudgetisaneffectivemanagementtoolorsimplyaclericaldevice.Example:Inwhatcircumstances,mightparticipativebudgetsnotbeeffective?A.IncentralizedorganizationsB.Inwell-establishedorganizationsC.InverylargebusinessesD.DuringperiodsofeconomicaffluenceSolutionisAAnimposedbudgetislikelytobemosteffectiveinacentralizedorganization.12.5CapitalexpenditurebudgetingCapitalexpenditureresultsintheacquisitionofnon-currentassetsoranimprovementintheirearningcapacity.Revenueexpenditureisexpenditurewhichisincurredforthepurposeofthetradeofthebusinessortomaintaintheexistingearningcapacityofnon-currentassets.Example:Whichofthefollowingareexamplesofcapitalexpenditure?A.PurchaseofinventoriesB.Improvementstotheearningcapacityofnon-currentassetsC.DepreciationD.Settlingtradecreditbal