EXECUTIVE SUMMARY

A budgeting system is not a decision system; it is a system for implementing decisions. Developing a budget is a critical step in planning any activity for businesses, government, enterprises, and for individuals. Budgeting is one of the fundamental decision-making processes in organizations. Budgeting systems are universal and an essential tool for financial planning to meant to organize and encourage the performance of managers of small as well as large and complex organizations. The budget also is used to help prevent the management from overspending.

There are a variety of alternative approaches to budgeting. United Consultancy uses the fixed budget (static budget) as their current budgeting approach. Fixed budget is a budget which is normally set prior to the start of an accounting period, and which is not changed in response of subsequent changes in activities or costs or revenues. The operating statement which prepared by United Consultancy for period 2 of the year ending 31 August 2012 was not present properly. This is because fixed budgets are generally used for planning purposes and its appropriate for those departments whose workload does not have a direct relationship to sales, production or some other volume determinant related to the departments operations.

This paper has not answered the question of which approach to budgeting will lead to United Consultancy achieving the optimum allocation of resources. As was noted in its operating statement for period 2 of the year ending 31 August 2012, there may be no theoretical model that will provide the perfect solution. Nevertheless, it has been shown that a variety of approaches have been employed across the private sector, in the UK and internationally. It seems reasonably clear that United Consultancy Departments could benefit from using the different approaches where the circumstances fit. The main benefit from zero-based, planning programme and performance-based budgeting is the link between budgets and business objectives. Even participatory budgeting, which is quite a radical departure from the incremental approach, appears to offer some strong benefits in this regard.

TABLE OF CONTENTS

PAGE NUMBER EXECUTIVE SUMMARY i

LIST OF FIGURES

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LIST OF TABLE

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1.0

INTRODUCTION 1.1 Purpose of Budget 1.1.1 1.1.2 1.1.3 1.1.4 1.1.5 1.1.6 1.2 Planning Coordination Communication Motivation Control Performance Evaluation

1 1 1 1-2 2 2 2 3 3 3 3 3 4 4-5

Types of Budgets 1.2.1 1.2.2 1.2.3 1.2.4 1.2.5 Master Budget Operating and Financial Budgets Cash Budget Static (Fixed) Budget Flexible Budget

2.0

MAIN BODY 2.1 2.2 United Consultancy Current Budgeting Approach Advantages and Disadvantages of Involving

6 6-7 7-8 8 8 8

Consultants in the Budgeting 2.2.1 The Advantages of Flexible Budget 2.2.1.1 Cost Control 2.2.1.2 Comparable

2.2.1.3 Easy Adjustment of Change 2.2.1.4 Easy Calculation 2.2.1.5 Determine Production Level 2.2.2 The Disadvantages of Flexible Budget 2.2.2.1 Makes Estimation Difficult 2.2.2.2 Too Many Variables 2.2.2.3 Cant Estimate Taxes 2.2.2.4 Complicated 2.3 United Consultancys Operating Statement August 2012 2.4 3.0 Zero-Based Budget for United Consultancy CONCLUSION

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REFERENCES

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