The Class is Managerial Accounting.

The topic this week is: Budgeting

What I mainly don't understand is we are being asked to embed Excel spreadsheets for relevant calculations and supporting schedules for this question below. I don't understand what needs to be quantified.

Here is the question:

Patricia Eklund, controller in the division of social services for the state, recognizes the importance of

the budgetary process for planning, control, and motivational purposes. She believes that a properly

implemented participative budgetary process for planning purposes and an evaluation procedure will

motivate the managers to improve productivity within their particular departments. Based upon this

philosophy, Eklund has implemented the following budgetary procedures.

An appropriation target figure is given to each department manager. This amount is the maximum

funding that each department can expect to receive in the next year.

Department managers develop their individual budgets within the following spending constraints as

directed by the controllers staff.

Expenditure requests cannot exceed the appropriation target.

All fixed expenditures should be included in the budget. Fixed expenditures would include

such items as contracts and salaries at current levels.

All government projects directed by higher authority should be included in the budget in

their entirety.

The controllers staff consolidates the budget requests from the various departments into a master

budget submission for the entire division.

Upon final budget approval by the legislature, the controllers staff allocates the appropriation to the

various departments on instructions from the division manager. However, a specified percentage of

each departments appropriation is held back in anticipation of potential budget cuts and special funding

needs. The amount and use of this contingency fund is left to the discretion of the division manager.

Each department is allowed to adjust its budget when necessary to operate within the reduced

appropriation level. However, as stated in the original directive, specific projects authorized by

higher authority must remain intact.

The final budget is used as the basis of control. Excessive expenditures by account for each department

are highlighted on a monthly basis. Department managers are expected to account for all

expenditures over budget. Fiscal responsibility is an important factor in the overall performance

evaluation of department managers.

Eklund believes her policy of allowing the department managers to participate in the budgetary

process and then holding them accountable for their performance is essential, especially during times

of limited resources. She further believes that the department managers will be positively motivated to

increase the efficiency and effectiveness of their departments because they have provided input into the

initial budgetary process and are required to justify any unfavorable performances.

Required:

1. Describe several operational and behavioral benefits that are generally attributed to a participative

budgetary process.

2. Identify at least four deficiencies in Patricia Eklunds participative policy for planning and performance

evaluation purposes. For each deficiency identified, recommend how it can be corrected.