Budgeting and Performance Measurement

[alexanderong_cg]

Hi...
I'm currently attempting the past year question of the ACCA 3.3 of the old syllabus.
[QUESTION 4 part (b) JUNE 2004] :err: HOW DO I ACTUALLY ANSWER AND PRESENT THIS
QUESTION to the examiner IF THE QUESTION HAPPENS TO COME OUT IN THE EXAM??
:wacko: I also do have problems in understanding the suggested answer by the old examiner.

Please show me some guidance and reference...thanks!!

Your help is deeply appreciated again.
Warmest regards,
Alex

EXTRACTS FROM ACCA P3.3

NN Ltd manufactures and markets a range of electronic office equipment. The company currently has a turnover of £4O million per annum. The company has a functional structure and currently operates an incremental budgeting system. The company has a budget committee that is comprised entirely of members of the senior management team. No other personnel are involved in the budget-setting process.

Each member of the senior management team has enjoyed an annual bonus of between 10% and 20% of their annual salary for each of the past five years. The annual bonuses are calculated by comparing the actual costs attributed to a particular function with budgeted costs for that function during the twelve month period ended 31 December in each year.

A new Finance Director, who previously held a senior management position in a not for profit health organisation, has recently been appointed. Whilst employed by the health service organisation, the new Finance Director had been the manager responsible for the implementation of a zero-based budgeting system which proved highly successful.

(b) Explain how the implementation of a zero-based budgeting system in NN Ltd may differ from the implementation of such a system in a ‘not for profit’ health organisation
(5 marks)

[Vitz]

Points taken into consideration when solving the question:

1- The company has a functional structure and currently operates an incremental budgeting system.

2- The company has a budget committee that is comprised entirely of members of the senior management team. No other personnel are involved in the budget-setting process.

3- The annual bonuses are calculated by comparing the actual costs attributed to a particular function with budgeted costs for that function during the twelve month period ended 31 December in each year.

4- A new Finance Director, who previously held a senior management position in a not for profit health organisation, has recently been appointed. Whilst employed by the health service organisation, the new Finance Director had been the manager responsible for the implementation of a zero-based budgeting system which proved highly successful.


Okay, I've just pasted the questoin here but the important thing is to link all 4 points with each other and you'll get the answer. Before you start writing an answer you should be knowing what incremental budget is, how is it comapred with zero based budgeting, what are the limitations of incremental budgeting? What happens when the budgets are made by senior management without taking opinions from lower management?

Give it a try, I hope it will be easier for you this time :)