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    Chapter 9 - Profit Planning

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    Amitav Barua
    The document discusses various aspects of budgeting including the basic framework of budgeting, advantages of budgeting, responsibility accounting, top-down and bottom-up budget approaches, self-imposed budgets, incremental and zero-based budgeting, human factors in budgeting, budget committees, and an overview of the master budget.

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    Chapter 9 - Profit Planning

    Uploaded by

    Amitav Barua
    114 views15 pages
    The document discusses various aspects of budgeting including the basic framework of budgeting, advantages of budgeting, responsibility accounting, top-down and bottom-up budget approaches, self-imposed budgets, incremental and zero-based budgeting, human factors in budgeting, budget committees, and an overview of the master budget.

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    05. Chapter 9 - Profit Planning

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    The document discusses various aspects of budgeting including the basic framework of budgeting, advantages of budgeting, responsibility accounting, top-down and bottom-up budget approaches, self-imposed budgets, incremental and zero-based budgeting, human factors in budgeting, budget committees, and an overview of the master budget.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    114 views15 pages

    Chapter 9 - Profit Planning

    Uploaded by

    Amitav Barua
    The document discusses various aspects of budgeting including the basic framework of budgeting, advantages of budgeting, responsibility accounting, top-down and bottom-up budget approaches, self-imposed budgets, incremental and zero-based budgeting, human factors in budgeting, budget committees, and an overview of the master budget.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 15

    Profit Planning

    Chapter 9

    © 2010 The McGraw-Hill Companies, Inc.


    The Basic Framework of Budgeting

    A budget is a detailed quantitative plan for


    acquiring and using financial and other resources
    over a specified forthcoming time period.
    1. The act of preparing a budget is called
    budgeting.
    2. The use of budgets to control an
    organization’s activities is known
    as budgetary control.

    McGraw-Hill/Irwin Slide 2
    Planning and Control

    Planning – Control –
    involves developing involves the steps taken by
    objectives and management to increase
    preparing various the likelihood that the
    budgets to achieve objectives set down while
    those objectives. planning are attained and
    that all parts of the
    organization are working
    together toward that goal.

    McGraw-Hill/Irwin Slide 3
    Advantages of Budgeting

    Define goals
    and objectives
    Communicate Think about and
    plans plan for the future

    Advantages
    Coordinate Means of allocating
    activities resources

    Uncover potential
    bottlenecks

    McGraw-Hill/Irwin Slide 4
    Responsibility Accounting

    Managers should be
    held responsible for
    those items - and only
    those items - that they
    can actually control
    to a significant extent.

    McGraw-Hill/Irwin Slide 5
    Top-down Budget Approach

    McGraw-Hill/Irwin Slide 6
    Bottom-up Budget Approach

    McGraw-Hill/Irwin Slide 7
    Self-Imposed Budget
    Top Management

    Middle Middle
    Management Management

    Supervisor Supervisor Supervisor Supervisor

    A self-imposed budget or participative budget is a budget that is


    prepared with the full cooperation and participation of managers
    at all levels.

    McGraw-Hill/Irwin Slide 8
    Advantages of Self-Imposed Budgets
    1. Individuals at all levels of the organization are viewed as
    members of the team whose judgments are valued by top
    management.
    2. Budget estimates prepared by front-line managers are
    often more accurate than estimates prepared by top
    managers.
    3. Motivation is generally higher when individuals participate
    in setting their own goals than when the goals are
    imposed from above.
    4. A manager who is not able to meet a budget imposed
    from above can claim that it was unrealistic. Self-imposed
    budgets eliminate this excuse.
    McGraw-Hill/Irwin Slide 9
    Self-Imposed Budgets
    Self-imposed budgets should be reviewed
    by higher levels of management to
    prevent “budgetary slack.”
    Most companies issue broad guidelines in
    terms of overall profits or sales. Lower
    level managers are directed to prepare
    budgets that meet those targets.

    McGraw-Hill/Irwin Slide 10
    Incremental Budgeting

    When the prior year’s budget is used as


    the starting point for preparing the current
    budget, it is called incremental budgeting.

    McGraw-Hill/Irwin Slide 11
    Zero-based Budgeting

    With zero-based budgeting, each


    expenditure item must be justified for the
    new budget period. No expenditure is
    presumed to be acceptable simply
    because it is reflective of the status quo.

    McGraw-Hill/Irwin Slide 12
    Human Factors in Budgeting
    The success of a budget program depends on three
    important factors:
    1.Top management must be enthusiastic and
    committed to the budget process.
    2.Top management must not use the budget to
    pressure employees or blame them when
    something goes wrong.
    3.Highly achievable budget targets are usually
    preferred when managers are rewarded based on
    meeting budget targets.

    McGraw-Hill/Irwin Slide 13
    The Budget Committee

    A standing committee responsible for


     overall policy matters relating to the budget
     coordinating the preparation of the budget
     resolving disputes related to the budget
     approving the final budget

    McGraw-Hill/Irwin Slide 14
    The Master Budget: An Overview
    Sales budget

    Selling and
    Ending inventory administrative
    Production budget
    budget budget

    Direct materials Direct labor Manufacturing


    budget budget overhead budget

    Cash Budget

    Budgeted
    Budgeted
    income
    balance sheet
    statement

    McGraw-Hill/Irwin Slide 15

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