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Policies for Budget Development: Case Study 1

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Policies for Budget Development
Policy Comments Overall, it appears that Hector Corporation has a solid annual budget development policy in place. There is a budget committee that Hector Corporation sets up in order to drive the budget process. The company’s controller, who is responsible for implementing the master budget, is part of the committee. At the beginning of the budget process, Hector Corporation reviews the plans and determines what the overall goals for the following budget year are going to be. Early in the process, sales goals are determined. The operating budget includes the day to day operations of the company. The financial pro forma can be created in integrated into the budget. Moving into the fall timeframe, after the initial budget information is gathered and compiled into the master budget, this is reviewed and rounds of changes are made as necessary until final approval. Once there is the final approval, it is the policy of Hector Corporation to communication these to the appropriate managers (Crosson, 2011). It is clear that those who have authority over the budget, such as division manager and department heads are involved in the budget process, which is key since they will be held accountable for the results in the following year (Crosson, 2011).
What changes would you recommend? I would recommend the budget committee to review the long term goals of the company. As mentioned in the chapter reading, this is critical to setting the annual budget in order to ensure that the plans that are being put into place support these long term goals (Crosson, 2011). The second recommendation I would make would be for Hector Corporation to implement a more participative budgeting process. There is no indication that front line associates are engaged in the process. As the text describes, having participation from all levels of the organization helps the company determine realistic expectations for performance and it is authoritative (i.e. coming from the leaders). This input can be invaluable in constructing a budget that achieves a high level of success as the entire organization is involved in creating and executing towards the goals (Crosson, 2011). The third recommendation would be for Hector Corporation to the clearly communication company-wide the budget and to obtain top leadership buy in to the final budget the committee approved. Neither of these were indicated in the case study. The case study did indicate that the approved budget was provided to the division managers and the department heads, but there was no indication to how it was communicated to the front-line workers and if there was top management buy in to the budget. These are important elements that need to be considered to ensure that the corporation at all levels are aligned on the goals for the following year (Crosson, 2011).
References
Crosson, S. & Needles, B. (2011). Managerial Accounting. Mason, OH: South-Western Cengage Learning.

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