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    Chap 008

    Uploaded by

    Hafsa Jawed
    Budgeting involves developing objectives and preparing budgets to achieve those objectives. It allows organizations to plan, coordinate activities, allocate resources, and uncover potential bottlenecks. Budgets can cover periods like a fiscal year or be continuous rolling budgets. Self-imposed budgets created with participation from all levels tend to be more accurate and motivate managers. However, budgets require top management commitment and non-punitive use to be effective. A master budget integrates key financial plans like sales, production, expenses and cash flow.

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    Chap 008

    Uploaded by

    Hafsa Jawed
    5 views13 pages
    Budgeting involves developing objectives and preparing budgets to achieve those objectives. It allows organizations to plan, coordinate activities, allocate resources, and uncover potential bottlenecks. Budgets can cover periods like a fiscal year or be continuous rolling budgets. Self-imposed budgets created with participation from all levels tend to be more accurate and motivate managers. However, budgets require top management commitment and non-punitive use to be effective. A master budget integrates key financial plans like sales, production, expenses and cash flow.

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    Budgeting involves developing objectives and preparing budgets to achieve those objectives. It allows organizations to plan, coordinate activities, allocate resources, and uncover potential bottlenecks. Budgets can cover periods like a fiscal year or be continuous rolling budgets. Self-imposed budgets created with participation from all levels tend to be more accurate and motivate managers. However, budgets require top management commitment and non-punitive use to be effective. A master budget integrates key financial plans like sales, production, expenses and cash flow.

    Copyright:

    © All Rights Reserved
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    5 views13 pages

    Chap 008

    Uploaded by

    Hafsa Jawed
    Budgeting involves developing objectives and preparing budgets to achieve those objectives. It allows organizations to plan, coordinate activities, allocate resources, and uncover potential bottlenecks. Budgets can cover periods like a fiscal year or be continuous rolling budgets. Self-imposed budgets created with participation from all levels tend to be more accurate and motivate managers. However, budgets require top management commitment and non-punitive use to be effective. A master budget integrates key financial plans like sales, production, expenses and cash flow.

    Copyright:

    © All Rights Reserved
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    of 13

    Profit Planning

    Chapter 08
    8-2

    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.
    8-3

    Planning and Control


    Planning – Control –
    involves developing involves the steps taken
    objectives and by management to
    preparing various increase the likelihood that
    budgets to achieve the objectives set down
    those objectives. while planning are attained
    and that all parts of the
    organization are working
    together toward that goal.
    8-4

    Advantages of Budgeting
    Define goals
    and objectives
    Communicate
    plans

    Advantages
    Coordinate Means of allocating
    activities resources

    Uncover potential
    bottlenecks
    8-5

    Responsibility Accounting

    Managers should be
    held responsible for
    those items - and only
    those items - that they
    can actually control
    to a significant extent.
    8-6

    Choosing the Budget Period


    Operating Budget

    2011 2012 2013 2014

    Operating budgets ordinarily


    A continuous budget is a
    cover a one-year period
    12-month budget that rolls
    corresponding to a company’s
    forward one month (or quarter)
    fiscal year. Many companies
    as the current month (or quarter)
    divide their annual budget
    is completed.
    into four quarters.
    8-7

    Self-Imposed Budget
    Top M an ag em en t

    M id d le M id d le
    M an ag em en t M an ag em en t

    S u p ervisor S u p ervisor S u p ervisor S u p ervisor


    A self-imposed budget or participative budget is a budget that is
    prepared with the full cooperation and participation of managers
    at all levels.
    8-8

    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.
    8-9

    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.
    8-10

    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.
    8-11

    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
    8-12

    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
    8-13

    End of Chapter 08

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