Lastly, a budget is important because it is used by the management to monitor the results of operations and to take any corrective actions when such a need arises.
Another concern very much applicable to a manufacturing company like ours is the proper implementation of a standard cost and variance reporting system. According to Gene Siciliano (2003, p. 134), the power of this system lies in the analysis of the differences or variances and utilizing the results of such analysis to ensure that the managers change what they are doing, all for the long-term profitability of the company. The standard cost and variance reporting system is important because it helps management measure the efficiency of each department. it aids management in pinpointing where exactly the deviations occur and in taking corrective measures accordingly. it controls costs and, lastly, it aids management in making the right decisions on which areas need to be addressed (Globusz Publishing, n.d.).
HK Corporation (the Company), like a lot of companies, has its own budget and standard cost system. However, in the last few years, we have been unable to meet our budgeted targets for sales and net income before income tax making the budget fail in its goal to control our operations. I believe that our budgeting process has contributed to our failure to achieve our targets. This report that I am submitting shows why I believe this is the case. My report also contains some suggestions or recommendations on how our budgeting process can be revised to solve its problem and how we can improve on our standard costs and variance reporting systems.
First of all, the top-down approach has led to inadequate allocation of resources and dissatisfaction among the managers. In fact, most often than not, after the director of finance and the other managers met to thresh out the problem areas in the budget, we see our managers often left