A-AS Level (CIE) Business Studies Paper-2: Specimen Questions with Answers 33 - 33 of 52

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Case Study-9

Alpha Limited manufactures air-conditioners of different sizes and types. For manufacturing air conditioners, most of the components are purchased from vendors; only some critical machinery work is undertaken by the company before the various components are used for assembly. The company has manual inventory control system. This system is not able to provide timely information to procure various components. In order to overcome this problem, the company wanted to install computerized inventory control system. For this purpose, the company hired an information system analyst. He studied the present inventory control system so that he could design job standardized forms in which relevant information about purchasing and usage of various components should be given for production department and accounting department. However, he was surprised to find that each department had a different view of what should go in the forms.

Question 33 (5 of 5 Based on Passage)

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Short Answer▾

What are the operational problems that come in the way of budgetary control?

Explanation

Besides many planning problems, some operational problems also come in the way of effective budgetary control system. Following problems are the major ones:

  • A budget is just a sophisticated guesswork, so question can be raised about its usefulness for being used as standard against which to measure the performance and to act. Apart from control actions relating to materials and things, control actions may be directed towards personnel in the organization. This may work against the morale of the people in the organization specially if the budgetary control system does not operate properly.
  • Budgetary control may affect organizational morale adversely in another way. There is every likelihood that departmental managers may adopt a defensive attitude as soon as unfavorable variances are brought to their notice. To save themselves from criticisms, they may pass on the blame on other managers. This may create many types of problems and conflicts in the organization.
  • Budgetary control system requires a lot of paper work which the technical personnel always resent. In fact, this does not fit with their areas of specialization. To that extent, the applicability of budgetary control system, particularly in its control aspect, may be limited.

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