Lecture 7 - Budgeting

Lecture 7 - Budgeting - Short-run emphasis on budget only...

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1 Budgeting Chapter 6 Vocabulary • Budget = quantitative expression of a firm’s strategic plan of action • Master budget vs. Flexible • Purpose and management intentions - planning &/or control • Participative budgeting - a.k.a. self-imposed budgeting Preparing the budget • Pick period(s): fiscal quarter vs. rolling • Project sales • Plan production activity level – Sales prediction – Current finished goods inventory – Desired ending finished goods inventory • Plan purchases, employment •Est imate f ixed
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2 Behavioral aspects Participative budgeting – Better information – Better cooperation – But also budgetary slack • Dysfunctional responses – Compulsion to spend all discretionary funds
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Unformatted text preview: Short-run emphasis on budget only Questionable actions designed only to balance the budget Stretch vs. Highly achievable budgets Incremental vs. Zero-Based budgeting Uses of budgets Planning Operational plans (short-term) Capital budgets (long-term) Company strategy Control Management by exception Motivation Performance evaluation Responsibility centers Variances: comparison with standards Variances unfavorable variance = NI is reduced from the budgeted expectation favorable variance = NI is increased from budgeted expectation Note: Do not interpret directly as bad or good (with respect to the source of the variance) ASSIST, dont blame...
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This note was uploaded on 05/19/2008 for the course ACCT 2521 taught by Professor Basu during the Fall '07 term at Temple.

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Lecture 7 - Budgeting - Short-run emphasis on budget only...

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