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ACCT 350 Financial Accounting : Budget Review Process

Answer:

Manufacturing Company And Value Chain

By considering market conditions of United States, I am planning to start a company engaged in manufacturing of furniture. In accordance with the model of Porter’s Generic value chain, primary activities of the company will deal with physical manufacturing, sale, storage and maintenance of furniture and support activities will be associated with additional activities. Descriptive value chain of food manufacturing company will be as follows


Primary activities

Support activities

Inbound Logistics

This will include receiving, storing and distribution of inputs (wood and other raw material) as per requirement of internal business (Mudambi & Puck, 2016).

Procurement

This will include finding vendors and negotiating for best prices.

Operations

Input will be processed in completed furniture to make them in sellable conditions.

Human resource management

Development of efficient team with appropriate HR practices.

Outbound logistics

This will include distribution system developed to deliver final products to customers.

Technological development

To employ updated technologies to minimise cost and attain technical excellence in operational activities (Haz?r, 2015).

Marketing and sales

Promotion of products to enhance sales.

Infrastructure

This will include legal, accounting and other daily operational activities.

Service

Support services to customers after the purchase has been made.

Type of budget and essential budget review steps

For effective financial management and planning, the master budget will be prepared by considering operational activities of furniture manufacturing company. Considered budget is an aggregate of individual budgets of the company and will present the complete picture for their financial health by considering all activities (Kamensky, 2014). This budget will combine factors such as sales, assets, operating expenses and associated income streams. By making use of this budget, the company will be able to create financial goals and monitor their overall performance. This approach will align all departments and their respective managers for better coordination and communication.

 Benchmarks and associated benefits

The primary objective of all manufacturing companies is to be efficient, flexible and innovative in a best possible manner to ensure customer satisfaction and loyalty. For this aspect, following benchmark will be implemented:

Cost reduction and profitability increase: For this benchmark, management is required to set a target for manufacturing cost per unit, Downtime in Proportion to Operating Time and Productivity in Revenue per Employee. With this benchmark, furniture processing will be cost effective and as per prepared budgets (DRURY, 2013). Further, downtime will be minimised, and employee performance will be assessed in an appropriate manner to ensure overall productivity.

Production targets: Targets for production will be established at regular time intervals for workers. This benchmark will assist the company in making optimum utilisation of available capacity and have control over inventory turnover.

Customer experience: Regarding this benchmark, the company should set a target for on time delivery and yield to ensure the final product is delivered as per promise without unreasonable delay. Further, product quality should be maintained by ensuring quality, qualification of staff and utilised equipment (Weygandt, Kimmel & Kieso, 2015). With this approach, business will be able to enhance customer satisfaction and built their reputation in the market.

Ensuring compliance: Appropriate procedure and standards will be set for all operational activities by considering native laws and furniture industry standards. With this approach, work issues can be prevented, and operational activities will be conducted in accordance with laws and ethics.

Cost system

Furniture manufacturing company will make use of absorption costing system for preparing cost sheets and accounting.  It is a process of accumulating or expensing the cost involved in the entire production process and allocating to individual products. This method is required to maintain the inventory valuation. The various costs that are assigned under this costing method are direct material, direct labour, variable manufacturing overhead and fixed manufacturing overhead (Mudambi & Puck, 2016). However, the primary challenge in this costing system is that product cost may not be directly traceable to the product because absorption costing requires allocation of overhead cost to the product (Rushton, Croucher and Baker, 2014). The other costing method is considered better as they do not require allocation of overheads. It can help in generating profit by producing more products than it can sell because absorption costing method allocates fixed manufacturing overhead to total unit produced and if some of them are not sold then the fixed overhead costs allotted to extra units is never charged to expense thus increasing the profits (Weygandt, Kimmel & Kieso, 2015).To resolve the above-described challenges, absorption costing will be applied with the approach of activity based costing in ensure relevant figures and accurate analysis for business.

References

DRURY, C. M. (2013). Management and cost accounting. Springer.

Haz?r, Ö. (2015). A review of analytical models, approaches and decision support tools in project monitoring and control. International Journal of Project Management, 33(4), 808-815.

Kamensky, J. M. (2014). Four Actions to Better Integrate Performance With Budget. Public Manager, 43(3), 11.

Mudambi, R., & Puck, J. (2016). A global value chain analysis of the ‘regional strategy’perspective. Journal of Management Studies, 53(6), 1076-1093.

Rushton, A., Croucher, P. and Baker, P., 2014. The handbook of logistics and distribution management: Understanding the supply chain. Kogan Page Publishers.

Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2015). Financial & Managerial Accounting. John Wiley & Sons.

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