Budgeting Process of Mercantile Marine Management Ltd

The selected company is mainly providing a service to their clients and it uses budgeting to a greater extent because they are always dealing with large amounts in revenue & cost of their operations. Therefore they understand the essence and the importance of a suitable budgeting system for various purposes such as forecasting, variance analysis and controlling purposes.

MMM is used Roll forward budgeting approach for budgeting. A rolling budget is also known as a continuous budget. They implement their budgeting system through some steps and take necessary corrective actions for variances occurred in budgeting compared to the actual figures. They use various strategies to achieve the goals of ongoing budgeting process by taking into consideration about the performance of the company in past and the expected performance in future.

Firstly, Management accounting personnel of MMM prepare their budgets for the entire year at the beginning of each year. This occurs based on their own strategies for forecasting and they make some assumptions before forecasting the budget, for an example the company has assumed that the increment of employees’ salary would be 10%, the increment of other expenses would be 5%. & etc.

Then after preparing the budget, the actual figures are compared with the budgeted figures by the company once in every quarter. But before taking into consideration of the variances in budget for a quarter, the company makes a comparison between the actual & budget on monthly basis. But they do not take any action to revise the budget considering the variances identified from comparison of monthly actual figures with that of budgeted figures but there is a duty of management accountant to provide the causes for such variances to the top management of the organization and then they will take them into consideration. And also the budget is revised only on quarter basis by the company. And this process will continue until the end of the year.