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The advantages and disadvantages of budget setting

Direct costs, indirect costs and overhead: Direct costs: those cost that can be directly traced to producing specific goods or services. For example, the cost of leather in making bags can be attributed directly to the cost of manufacturing these products. Depreciation and administrative expenses, are more difficult to assign to specific products, and so are not considered as direct costs.
Indirect costs: those costs that not directly related to the production of a specific good or service but that is indirectly related to a variety of goods or services. Purchasing office furniture for bag manufacturing firm is one example of indirect cost because it does not affect the production of any one unit.
A cost can be direct cost of a department but it is indirect cost of the others. The classification depends on which department the cost is involved in. For example, the salary of workers working in construction site is a direct cost but the salary of managers managing this site is not direct cost, it is indirect cost.
Overheads: in business, overhead expense refers to an ongoing expense of operating a business. All costs on the income statement are regarded as overhead expense except direct materials and direct labor expense. For instance, depreciation expense, advertising, insurance, rental fees, telephone bills, repairs, office supplies and utilities costs are overheads.
c. Controllable and uncontrollable costs: – Controllable costs: costs that can be influenced by the department involved or managers are capable of controlling them.
– Uncontrollable costs: costs that managers cannot influence significantly or managers cannot control them.
2. Evaluate the statement of the delegate In my point of view, the delegate misconceived the terms used in the statement, so for this reason I strongly disagree with this statement.
Costs are assigned to cost objects for a variety of purpose including pricing, profitability studies and control of spending. Based on the purpose of management, the costs are classified as the following:
For cost volume profit analysis or profitability studies, costs are divided into three categories fixed cost, variable cost and semi-variable cost.
For pricing, costs are classified into direct costs and indirect costs.
For control of spending, costs are divided into controllable costs and uncontrollable costs.
Because of the misconception about classification of cost, the delegate used the terms in this statement wrongly.
Direct costs can be regarded as both fixed costs and variable costs.
As I have mentioned through the obvious example above, direct costs like the salary of workers working in construction site is a fixed cost. Every month, the company has to pay the fixed rate salary for the workers according to the colored labor contracts they have made. On the other hand, most of variable costs such as direct input materials, direct labor per unit are direct costs.
Indirect costs can be either fixed costs or variable costs.
In contrast with direct costs, most of indirect costs are fixed costs, for example the rental fees for representative offices, sale department and the security cost. These costs do not directly attribute to manufacturing products thus they are indirect and fixed costs. On the other hand, labor costs can be indirect as in case of maintenance personnel or executive officers.
Controllable and uncontrollable costs:
For control of spending purpose I have mentioned above, costs are classified into controllable and uncontrollable costs that represent the level of management in a term.
When you have authority to select the input materials, the methods and staffs, the collection can be regarded as controllable costs. If you made a multi-year agreement to contract for collection at fixed year fees, the cost can be uncontrollable. In lower management levels, the manager does not have enough leading skills so with any type of costs the manager can not control which becomes uncontrollable cost. In contrary, in the higher management level, both fixed costs and variable costs can be under controlled.
Question2 1. Participation in budget setting Participative budgeting is the situation in which budget are designed and set after input from subordinate managers, instead of merely being imposed. The purpose of participation in budget setting is to divide responsibility to subordinate managers and set a form of personal ownership on the final budget. The budgeting approach in which the subordinate participates in budget setting, they provide their own information that the supervisors use to formulate the self – imposed budget or participative budget (Chapman, Hopwood

The Legitimacy Theory And CSR Disclosure Accounting Essay

The issue of corporate social responsibility has got a lot of attention in the business and political world since the early 1990’s and the major reason behind this was corporate scandals. Organizations had started to realize that the basis on which they were achieving economic growth was unsustainable and hence there was a need to develop a process which would intend at balancing economic growth with environmental sustainability and societal expectations. In fact the origin of corporate social responsibility can be found in the 1950s and 60s whereby successful companies were trying to link corporate social responsibility to the power that business holds in society. The theoretical progresses were subdivided in ethical and accountability and the stakeholder approach to strategic management.
CSR can be distinguished from the three terms which are included in its designation phrase and these words are; ‘Corporate’, ‘social’ and ‘responsibility’. Hence CSR can be explained as being the responsibilities that a company undertakes for the society within which it carry out its operations. To be specific, CSR require a business to identify its stakeholders and include their needs and values in the tactical day to day decision making process of the company. Consequently the society within which a business function and which identify the number of stakeholder to which the organization owe a responsibility can be broad depending on the type industry within which it operate. The different stakeholders to which a company is accountable can be illustrated using the figure below:
Figure 1: stakeholder of a business
According to figure 1, a business must respond to two aspects which evolve during their operating process and these are:
The quality of management which is represented by the inner cycle and it is both in terms of people and processes.
The nature of and the extent to which their processes impact on the society in various areas.
The stakeholders who are outside take more interest in the activities undertaken by the company, i.e. most of them look at what has the company actually done. Their objective is to fid out if the company has done good or bad in terms of its product and services, the treatment it gives it its labour force and in terms of the impact of its activities on the environment and local communities.
There seems to be an infinite number of definitions of CSR, ranging from the simplistic to the complex, and a range of associated terms and ideas including `corporate sustainability, corporate citizenship, corporate social investment, the triple bottom line, socially responsible investment, business sustainability and corporate governance’. It has been suggested that `some researchers distort the definition of corporate social responsibility or performance so much that the concept becomes morally unintelligent, conceptually meaningless, and utterly unrecognizable'(Orlitzky 2005); or CSR may be regarded as `the universal remedy which can solve several social evil such as the global poverty gap, social exclusion and environmental degradation’ (Van Marrewijk 2003).
Some definitions of CSR which are commonly accepted are:
The notion of companies looking beyond profits to their role in society is generally termed corporate social responsibility (CSR)..It refers to a company linking itself with ethical values, transparency, employee relations, compliance with legal requirements and overall respect for the communities in which they operate. It goes beyond the occasional community service action, however, as CSR is a corporate philosophy that drives strategic decision-making, partner selection, hiring practices and, ultimately, brand development. [1]
South China Morning Post, 2002 The social responsibility of business encompasses the economic, legal, ethical, and discretionary expectations that society has of organizations at a given point in time. [2]
Archie B. Carroll, 1979 CSR is about businesses and other organizations going beyond the legal obligations to manage the impact they have on the environment and society. In particular, this could include how organizations interact with their employees, suppliers, customers and the communities in which they operate, as well as the extent they attempt to protect the environment. [3]
The Institute of Directors, UK, 2002 Why is CSR relevant today?
CSR has become famous in the language and strategy of business and by the growth of dedicated CSR organizations globally. Governments and international governmental organizations are increasingly encouraging CSR.
CSR is rapidly becoming a major part of all business management courses and a key global issue because of three trends which are easily identifiable:
1. Changing expectations of the society
Following recent corporate scandals which have lead to the decrease in the trust that the public has on regulatory bodies and companies to control corporate excess, customers and the general public tend to expect more from the company with which they trade.
2. Rising affluence
This is true not only in developed countries but also in developing countries. Rich customers have enough money to select the product they want to buy and as the society need work and inward investment will not impose severe rules which will penalize companies which invest their money elsewhere. In other words if a company is investing its money in CSR activities and for this reasons its product become more costly, the affluent consumers will not punish the organization and they will buy its product.
3. Globalization
Nowadays the least mistake made by companies is instantly make known to the public via the media. On top of that, increasing internet communication between people having the same opinion and the consumers, authorize them to spread their message and giving them the opportunity to take collective action that is they can boycott a product. In other words if a company is taking actions which is against the environment and the society, the public may takes action against the business.
According to these three trends, more importance is given to brand which lead to the success of companies and thus there is a shift in the relationship between companies and customers whereby the latter are better informed and feel more powerful to put their belief into action. From the standpoint of businesses, the parameters within which they operate are more and more affected by bottom-up, working class campaigns, NGOs and consumer activists leading to a change in the relationship between consumers and the company.
CSR is becoming more and more important in our fast developing world as brands are built on perceptions and concepts which appear to have higher values.
Theoretical Frameworks and CSR Disclosure The Legitimacy Theory
While there is no generally accepted theory for explaining CSR disclosure practices, recent research in the CSR literature has primarily relied on legitimacy theory (Deegan 2002, p. 285). Indeed, “it is probable that legitimacy theory is the most widely used theory to explain environmental and social disclosures” (Campbell, Craven and Shrives, 2003, p. 559) while, according to Gray, Kouhy and Lavers (1995), legitimacy theory has an advantage over other theories in that it provides disclosing strategies that organisations may adopt to legitimate their existence that may be empirically tested.
The Legitimacy theory, according to Ness