ACC 561 Week 5
Kimmel, Weygandt, and Kieso (2011) state, “effective budgeting depends on a sound organizational structure. Structure, authority and responsibility for all phases of operations are clearly defined” (p. 1033). Palmer Corporation as a decentralized organization needs to perform the responsibility accounting to link the manager’s decision-making, and delegate some decisions to those who are lower levels, and with the knowledge of day-to-day operations. The objective is to help in the planning and control of the business.
Under responsibility accounting, manager’s performance is evaluated at every level, and managers can distinguish controllable and non-controllable fixed costs, identify cost, profit, and investment (Kimmel, Weygandt, Kieso, 2011). Based on these principles, the budgeting process employed by Palmer Corporation could be evaluated, revised and corrected, if necessary.
Palmer Corporation – Budgeting Process
Current budget process utilized by Palmer Corporation contributes to the failure in achieving the president’s profit and sales objectives, because the budget goals are established from top to bottom instead of bottom to the top. Palmer Corporations budget is a “top-down” budget which falls short when considering both the realistic data and human interaction necessary for an useful budgeting and control process The first step of desired target goals established by the president is correct, as the strategic objectives need to be established by the senior staff; however, the process of working out the detailed resource allocation need to stem from below and estimated by departments that actually going to perform the assigned tasks.
Current process creates the environment of conflict and placed various departments into fighting position for resources. If departments were allowed to create their own cost estimates based on desired corporate goals, then cost estimates would have been more accurate. Allowing input from the subordinates into the planning process also creates the environment of collaboration and allows for better motivation for achieving these goals. It also increases the amount of accountability that could be held in regards to performance as detailed goals were created by the individuals in charge of operations.
Palmer Corporation – Revised Budgeting Process
As aforementioned, Palmer Corporation should take in consideration a “bottom to top” or participative budget process. Employees responsible for performance related to the budget would participate in decisions of the established budget. The current budget process