Question

Zangezur Manufacturing has just hired a new controller, Leslie DeMorst. During her first week on the job, Leslie was asked to establish a budget for operating expenses in 2019. Since Leslie was not yet familiar with the operations of Zangezur Manufacturing, she decided to budget these expenses using the same procedures as the prior controller. Therefore, in order to establish a budget for operating expenses, Leslie started with actual operating expenses incurred in 2018 and added 3.8%. Leslie based this percentage on inflation as measured by the consumer price index. Required: Comment on the effectiveness of Leslie’s budgeting strategy.

Answer 1

Leslie’s budgeting strategy.is not so effective -

Leslie’s sholuld take first step is that to familiar with organization , its work , its expenses , like fixed expenses , variable expenses , expenses which is based on market inflation , organization income generating sources , avoidable expenses , aplicable law -

after that Leslie’s should make budget - for making operating budget Leslie’s shoild know labour availability , their wge rate (like hour based rate , unit based rate ), and unexpected incresing rent amount , raw material availablity , suppliers , raw material subsitute , incresing rate of insurance premium . etc so taking actual operating expenses incurred and added 3.8%. is not enough , for making budget startegy other area also should consider .