Question

You have examined the budget reports and have discovered that in the first quarter reporting, one section has spent over 75% of their budget allocation. What will you do and should you be concerned about this? Discuss in 50 to 80 words. (Please answer in Australian Accounting Environment and please type up your answer)

Answer 1

There are various reasons for excess spending:-

1. In case of Seasonal activities the business blooms for a quarter and remains stagnant for rest of the year, however this is in an exceptional case.

2. It can also happen due to over allocation of certain expenses.

3. Errors can also result over absorpption of budget.

Yes, the entity must be concerned about this issue as a budget is prepared for an entire year and it must be more or less utilized proportionately, however if 75% is consumed in first quarter itself then it has to be taken care of.

Steps that can be taken:-

1. Communicate with the respective section and seek details if over consumption of budget.

2. In case of genuin need budget must be enhanced after due consultation with the management.

3. Further stringent controls must be put in place to moniter consumption.

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