a) Stages in the budgeting process

Stage 1: Identify the principal budget factor

Stage 2: Prepare the budget for the principal budget factor

Stage 3: Prepare the other functional budgets in logical sequence

Stage 4: Submit the functional budgets to the budget committee

Stage 5: Prepare the master budget

Stage 6: The master budget and the supporting functional budgets should be submitted to the budget committee for approval Stage 7: The detailed budgets are communicated to the managers responsible for their implementation

Stage 8: Control process (1.25 marks for each stage explained

b) Criticisms of the budgeting process

• A cumbersome process which occupies considerable management time. The budgeting process involves detailed negotiations between the budget holders and their superiors and the accountancy staff. Because the process is very time-consuming it must be started well before the start of the budget year. Subsequent changes in the environment and the fact that the outcomes reflected in the master budget may not meet financial targets, may necessitate budget revisions and a repeat of the negotiation process.
• Concentrating unduly on short-term financial control. Short-term financial targets are normally set for the budget year and the budget is used as a mechanism for achieving the targets. Budget adjustments are made to ensure that the targets are achieved, often with little consideration being given to the impact such adjustments will have on the longer-term plans.
• Having undesirable effects on the motivation of managers. Managers are often rewarded or punished based on their budget performance in terms of achieving or exceeding the budget. There is a danger that the budget will be viewed as a punitive device rather than as an aid to managers in managing their areas of responsibility. This can result in dysfunctional consequences such as attempting to slack into the budgeting system by overstating costs and understating revenues. The overriding aim becomes to achieve the budget, even if this is done in a manner that is not in the organisation’s best interests.
• Emphasizing formal organisation structure. Budgeting are normally structured around functional responsibility centres, such as departments and business units. A functional structure is likely to encourage bureaucracy and slow responses to environmental and competitive changes.
• There is a danger that there will be a lack of goal congruence and that managers may focus on their own departments to the detriment of the organisation. (5 points well-explained @ 1 mark each = 5 marks)

c) Limitations of Lean Production Model

1. It might result in high purchase cost of inventory leading to increase product cost
2. Waiting for customer requests to drive production may result in idle time and waste of human resources.
3. The concept of zero defects may not be realistic
4. It may not be applicable in certain organizations where inventory is supplied in advance, example, hospitals (4 points @ 1.25 marks each = 5 marks)