c) A budget is an approximation of income and expenses over a indicated future period of time and it is compiled and re-evaluated on a periodic basis. At companies and organizations like Sam Engineering & Equipment (M) Berhad, a budget is an internal tool utilized by the management and is regularly not required for reporting by external parties. Budgeting includes preparing estimates of future sales, future cash collections and disbursements and future day-to-day activities of the company and summarize the above estimates into an income statement and balance sheet. Budgets help management choose which activities it will attempt and how the company’s resources will be utilized.
There are a number of serious problems related with budgeting, which incorporate excessive time needed to create budgets, budgeting inaccuracy and managers become too occupied by creating and reviewing budgets and they tend to forget to focus on the real issues of winning customers. The first problem that Sam Engineering ; Equipment (M) Berhad might face is inaccuracy. A budget is basically on a set of assumptions that are commonly not too far from the operating conditions under which it was formulated.
If the business surroundings changes tremendously, the company’s revenues or cost structure might also change completely that actual outcomes will briskly depart from the expectations presented in the budget. This situation is a precise problem when there is a unexpected economic downturn, since the budget authorizes a certain level of spending that is no longer supportable below a suddenly reduced revenue level. Unless the company’s management acts quickly to override the budget, managers will proceed to spend under their authentic budgetary authorizations, thereby rupturing any opportunity of earning a profit. Other specifications that can additionally cause outcomes to vary unexpectedly from budgeted expectations consist of changes in interest rates, currency exchange rates, and commodity prices.The second problem that the company stated in above may face is the excessive time needed to create a budget. It takes a very long time to create a budget, especially when the company is poorly-organized. Since budgeting requires Microsoft Excel, it is difficult to create budget if the manager is poor in Excel and not well trained, and this will take longer time to create a budget. If Sam Engineering ; Equipment (M) Berhad uses budgeting software, the time involved is lower.
The work can be more if they use excel most of the time than the budgeting software. In large businesses such as Sam Engineering ; Equipment (M) Berhad, the whole departments of the company are sometimes committed to budget setting and control. For that reason, Sam Engineering ; Equipment (M) Berhad might need more time to create a budget. The third problem of budgeting that could happened in the Sam Engineering ; Equipment (M) Berhad is managers can become too preoccupied with setting and reviewing budgets and forgetting to focus on the real issues of winning customers. This problem will lead to a loss for the company since this company only focusing in setting and reviewing budgets but not focusing in the company profit. This problem will also lead the company to not be well recognised it’s because the company managers focusing more on the budgets but not on how to win their customers.
Every company has a target they set to be achieved but Sam Engineering & Equipment (M) Berhad couldn’t achieved the target they set because they tend to focus more on the setting and budgets. If the company managers continue focusing on the setting and budgets only therefore it won’t satisfy the customer’s needs and the company will tend to lose their customers.d) The first solution to overcome the problems of budgeting is inaccuracy. With the help of open-sourced information and software package libraries, we tend to develop a knowledge mining software package model for companies intelligent budgeting coming up with. The experiment demonstrates the existence of the modification pattern of ?nancial variables for a precise companies’ cluster.
A budget quality warning device is developed. The system classi?es a budget whether viable or inviable. As a result, companies will create higher selections by up forward trying ?nancial analysis. This enables them to right away develop contingency measures, revise the policy and acquire the business back on the correct track. This has been a long-desired perform required by a business or a bank.
By this, Sam Engineering & Equipment (M) Berhad can get a solution for an inaccuracy budgets.
