3. Select a large organisation with which you are familiar and identify the cost

Question

3. Select a large organisation with which you are familiar and identify the cost centres or sections. If you cannot identify a large organisation create a fictional one and describe its functions and the cost centres or sections it utilises. Using the organisation you have chosen select the cost centres or sections that you would involve in a budget planning process. If there are some that you would not involve explain why you believe that they should not be included. How would you involve those sections in the process and at what stage would their involvement begin? Detail the communication strategies that would be used with each section. What information might you require from the different sections and how will that information be used? 15 marks

Explanation / Answer

First of all we discuss what is "Cost Centers"

Organisation is made up of so many departments and sections like accounting, Finance, Human resource etc.all of them contributing from there side to the profit earning activities of the organisation in any way. Some of them contributing directly like Sales Department (Revenue center) or some of contributing indirectly like Human resource.

So, Any individual section or department of the big organisation is consider as Cost center of that organisation.

Now, We take one fictional entity say "Software development firm", which is focused on developing new technology based softwares for transaction processing system at wide retail market like amazon, walmart etc. for easy maintaining inventory, accounting data like ERP system. Firm has so many working departments from developing software to seling them to ultimate customer, as discussed below.

There are department and section as follows, here consider as cost centers -

Now, while budgeting, It always prepared by Finance Dept. and first one come into picture. it focus on overall scope and planning on preparation of budget for the period. First step in preparation of budget is of Research & developing expenses budget for developing in-house new technology. which involves salary to developer, equipment cost, travelling cost, educational cost of employees and other material cost.

After that, Human Resource come with budget for recruting peoples to develop software as per results of R & D Dept. which mainly includes Salaries to employees and other recrutment cost towards outside agencies.

Operational Dept come to give budget of Software developing activities which includes Salary to Developers, emplyee welfare, Equipment cost. etc.

After completion of development of software as per standards and when it is ready to handover to customer, marketing dept. contribute towards budget for expense like Client welfare, travelling, advertising etc.

on the same line Accounting dept. gives budget for Accounting cost, compliance cost, other taxation and administration cost budget for there cost center purpose.

After selling of the product, there may be complaints raised from the client side. To answer same there must be Help desk Dept. for providing "After sale servrices" to the clients. So It will give budget for expense like Equipments cost PBX cost, telephones, salary to employees etc.

This is basic flow of process of preparation of budget and sequence of participation of various Dept in flow. there may be more dept. according to size of organisation, here only discussed few of them but those are carries important role in budget process.

For carried out communication strategies with these departments Finance dept. should focus on cost or expenses will be incurred for each dept as cost center and made budget accordingly. Those all cost data collected from different depts from communication, are used as supporting for preparation of overall budget of the organisation.

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