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QUESTION 1

Top-down and bottom-up approaches to budgeting describe whether directives for budget
creation come from upper management or allow for input from lower-level program
implementing employees. In developing a promotional budget, consider the specific needs of the
promotion and the anticipated return on investment. Each approach has its merits and drawbacks,
although in a business environment in which colleagues work closely with one another, a
bottom-up approach is likely to encourage greater levels of collaboration.
Bottom-up Approach:
A budget sets goals and objectives for profitability. The budgeting process can be done on a
bottom-up basis, where each department develops its own goals and objectives under the general
guidelines of the owner or top management. The department then creates the action plans and
determines the necessary expenses required to achieve the goals.
Top-down Approach:

The other alternative is top-down, where each department's budget is determined by top
management and the financial staff and handed down to each department. Either budgeting style
has both positive and negative effects on employees.
Top-Down Advantages:
Anytime management takes complete control over budget allocations, it streamlines the business
accounting process and ensures a company stays on firm financial track. Budget maintenance is
important to companies for which even small cost overruns can be financially damaging. In the
top-down approach to promotional budgeting, upper management determines an appropriate
financial allowance for the promotion, and lower-level employees are expected to work with the
budget to the best of their ability.
Bottom-Up Advantages:
Management can feel a loss of financial control by following a bottom-up approach to
promotional budgeting. Supervisors may fear that lower-level employees will pad their budgets,
incur unnecessary expenses or fail to utilize money wisely if they have more input over and
access to financial resources. Management also may surmise that cost overruns will be greater
with the bottom-up approach. Alternatively, the approach can mean increased performance
pressure on lower-level employees.

QUESTION 2
Step 1.Project sales
Start the budgeting process by estimating sales. Go to the sales or marketing department and
request anticipated sales for the coming period. This estimate could be based on economic
projections, consultants' reports, or a simple analysis of trends in prior years.
Step 2 costing points
Determine whether any step costs will be incurred during the likely range of business activity in
the upcoming budget period, and define the amount of these costs and at what activity levels they
will be incurred.
Step 3 Set materials purchases
Once you know how many units you plan to produce it's time to figure out how much direct
materials you need to purchase.]
Step 4 Budget administration
The complexities involved in preparing the budget and implementing the budgetary control
system are many. Management has to put in an effort to ensure that the basic objectives of
budgeting are achieved. As discussed earlier, a joint effort on the part of all departmental heads
is required in preparing the budget. Management must provide an opportunity to all members to
participate in deciding goals and objectives, setting priorities, developing future action plans and
formulating general and specific policies.
Step 4 Design labor budget
The direct labor budget estimates how much work must be done to meet your production plans,
and the number of employees needed. To figure out the direct labor budget, ascertain (1) how
many hours of direct labor are needed to produce each unit and (2) the average direct labor rate.
Multiply both these factors by the number of Units to be produced that you estimated in the Step
2 Production budget: Hours needed to produce each unit x Average direct labor rate x Units to be
produced = Total direct labor costs
To figure out the number of employees needed, divide total hours to be worked by the number of
hours worked per week:
(Hours needed to produce each unit x Units to be produced) / Average number of hours worked
per week by each employee = Number of employees needed for production.
Step 5 Obtain department budgets
Obtain the budgets from all departments, check for errors, and compare to the bottleneck,
funding, and step costing constraints. Adjust the budgets as necessary.

Step 6 Estimate selling and administrative expenses


Sales don't happen automatically. You need to pay for sales agents, advertising, and other
marketing costs. All of these estimated costs are tabulated in the Selling and administrative
expense budget.
Step 7 Obtain capital budget requests
Validate all capital budget requests and forward them to the senior management team with
comments and recommendations.
Step 8 Budget an income statement
Sales come from the Sales budget (Step 1). To estimate cost of goods sold, multiply the number
of units expected to be sold (see Step 1) by the estimated cost per unit (a sum of Steps 3, 4, and
5). Other expenses include Selling and administrative expenses (see Step 6), general expenses,
depreciation expenses, and also income tax expenses.
Step 9 Issue the budget
Create a bound version of the budget and distribute it to all authorized recipients.
Step 10 Load the budget
Load the budget information into the financial software, so that you can generate budget versus
actual reports.
Question Part (b)
Spreadsheets, such as Microsoft Excel, are an invaluable tool for the preparation of budgets. In
the hands of the experienced operator they allow:
1. Information to be inserted, laid out, formatted and arranged for maximum readability with
relative ease.
2. Easy computation of budgetary estimates i.e. calculation of income and expenditure items
3. Quick and easy modification of figures with instantaneous results
4. Transmission of budget workings between work colleagues or members of the organization
management committee
5. Long term storage of workings to enable others in future years to follow how budgets were
calculated
Using spreadsheets to help you plan your budget can be useful because it can help with complex
calculations and you can see at a glance incomings and outgoings. It also means that any changes
to figures can be automatically updated in calculations by the spreadsheet so that it does all the
hard work.

Assignment No 1
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Name
Ahsan Iqbal
ID
12123019
Subject
Cost and Management Accounting
Date
12-05-2014

Submitted to:
Mr. Hassan Jabbar