You were recently hired as management director of the new I Can Business Incorpo

Question

You were recently hired as management director of the new I Can Business Incorporated (ICBI). You have been asked to establish policies and systems for the business. The first one you choose to work on is a financial reporting system.

For this assignment, you must develop a memo that you will deliver to the board of directors of ICBI. You will describe what a financial reporting system is and explain how management of ICBI should use an activity based budget instead of an operating budget. Be sure to explain the similarities and the differences of the two. Finally, give examples of budget guidelines for ICBI. You must answer the following questions:

Describe the meaning and the components of a financial reporting system.

Write a description of how management should use an activity based budget instead of an operating budget

Explain the similarities and differences of the two budgets

Give an example of budget guidelines that ICBI should follow in order to successfully plan.

Identify and describe at least 5 basic budget guidelines.

Remember to use the library or other credible resources to support your argument. Be sure to cite your sources using the correct standard of APA.

Explanation / Answer

Components of a financial reporting system are as follows:

2. Reason as to why management should use an activity based budget instead of an operating budget

Activity-Based Budgeting is a method of budgeting in which the activities that incur costs in every functional area of an organization are recorded and their relationships with each cost drivers are defined and analysed.

Activity Based Budgeting should be preferred to an operating budget because each overhead cost is directly charged to each product by means of the cost driver to know the true overhead cost. It emphasises that activity costs may be controllable if the activity volume is controlled. (A cost driver is any component that costs money or any factor that is related to a cost occurring, such as the volume produced or the number of labour hours.)

An operating budget is based on a set of assumptions that are generally not too far distant from the operating conditions under which it was formulated. However, if the business environment changes, then the company’s revenues/cost structure may defer to an extent that actual results will rapidly depart from the expectations presented in the budget.

3. Differences between operating budget and activity based budgeting

Similarities between operating budget and activity based budgeting

They are both methods of allocating various costs to the business products. Both of these methods assess overhead costs and then attach these costs to products based on certain cost drivers.

Related Questions

Navigate

• Browse (All)
• Browse Y
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.