Gemilang Bumi Bhd. It is in the early stages of planning for next year's annual budget. Alex recently joined the company as a business accountant and is interested in learning as much about the budgeting process of the organisation as possible. Alex introduced the following discussion after the latest meeting with the Sales Manager, who is Rock and Raju as Production Manager. Alex: Because I'm new here and I'm going to be involved in the yearly budget planning. I would like to know how the two of you predict the revenue and production figures. Rock: By looking at modern history, we start out very methodically, analysing what we know about existing accounts, future consumers, and the overall state of consumer spending. Then we apply the normal dosage of insight to generate the best guess we can make. Raju: I generally take the estimates for revenue as the foundation for my projections. Of course, we have to guess what the final inventories for this year are going to be, which is sometimes challenging. Alex: Why is that becoming an issue? In the budget for the next year, there would have been an estimation of the end of inventories. Raju: Those figures are not really accurate because before handing them on to me, Zack makes some changes to the revenue numbers. Alex: What sort of modifications? Rock: Yeah, we don't want to fall short of the revenue estimates, but by lowering the original sales forecast from 5% to 10%, we normally give ourselves a little breathing space. Raju: Then you can see that the budget is not a very reliable starting point for this year. As the year continues, we still have to modify the forecast thresholds, and this, of course, affects the actual inventory forecasts. By the way, by adding at least 10 percent to the forecasts, we make similar changes for expenditures. I guess everyone does the same thing around here. Required: Rock and Raju have described the use of what is sometimes called budgetary slack. a. Do you think the behaviour of Rock and Raju is ethical? Why? Discuss b. In your opinion, what are the reason for Rock and Raju to behave in that manner? discuss c. Discuss the effects of budgetary slack on the company. d. If you were Alex, what would you do to avoid this kind of behaviour among the budget preparers in that company. Discuss
Please solve use own sentences . Subject : Management Accounting
Gemilang Bumi Bhd. It is in the early stages of planning for next year's annual budget. Alex recently joined the company as a business accountant and is interested in learning as much about the budgeting process of the organisation as possible. Alex introduced the following discussion after the latest meeting with the Sales Manager, who is Rock and Raju as Production Manager.
Alex: Because I'm new here and I'm going to be involved in the yearly budget planning. I would like to know how the two of you predict the revenue and production figures.
Rock: By looking at modern history, we start out very methodically, analysing what we know about existing accounts, future consumers, and the overall state of consumer spending. Then we apply the normal dosage of insight to generate the best guess we can make.
Raju: I generally take the estimates for revenue as the foundation for my projections. Of course, we have to guess what the final inventories for this year are going to be, which is sometimes challenging.
Alex: Why is that becoming an issue? In the budget for the next year, there would have been an estimation of the end of inventories.
Raju: Those figures are not really accurate because before handing them on to me, Zack makes some changes to the revenue numbers.
Alex: What sort of modifications?
Rock: Yeah, we don't want to fall short of the revenue estimates, but by lowering the original sales forecast from 5% to 10%, we normally give ourselves a little breathing space.
Raju: Then you can see that the budget is not a very reliable starting point for this year. As the year continues, we still have to modify the forecast thresholds, and this, of course, affects the actual inventory forecasts. By the way, by adding at least 10 percent to the forecasts, we make similar changes for expenditures. I guess everyone does the same thing around here.
Required:
Rock and Raju have described the use of what is sometimes called budgetary slack.
a. Do you think the behaviour of Rock and Raju is ethical? Why? Discuss
b. In your opinion, what are the reason for Rock and Raju to behave in that manner? discuss
c. Discuss the effects of budgetary slack on the company.
d. If you were Alex, what would you do to avoid this kind of behaviour among the budget preparers in that company. Discuss
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