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Chapter 10_Budget_new.pptx

Chapter 10_Budget_new.pptx - Chapter 10 Profit...

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Profit Planning (Budgeting) Chapter 10
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After studying Chapter 10, you should be able to: 1. Understand why organizations budget and the processes they use to create budgets. 2. Understand Basic Budgeting Terms and the Behavioral Aspects of Budgeting. 3. Understand the Key Components of Master Budget in Manufacturing, Merchandising and Service Industries
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4. Prepare a Master Budget for a Manufacturing Company. 5. Explain the Costs and Benefits of Budgeting After studying Chapter 10, you should be able to:
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Learning Objective 1 Understand why organizations budget and the processes they use to create budgets.
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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 .
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Planning and Control Planning involves developing objectives and preparing various budgets to achieve those objectives. Planning involves developing objectives and preparing various budgets to achieve those objectives. Control involves the steps taken by management to increase the likelihood that the objectives set down while planning are attained and that all parts of the organization are Control involves the steps taken by management to increase the likelihood that the objectives set down while planning are attained and that all parts of the organization are
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Advantages of Budgeting Advantages Define goal and objectives Uncover potential bottlenecks Coordinate activities Communicate plans Think about and plan for the future Means of allocating resources mmunicate plans throughout the organisation. To avoid managers spend of their time dealing with day-to-day emergencies Serve as benchmarks for evaluating subsequent performance To ensure that scarce resource are allocated efficiently To detect potential problem before it occurs To ensure that everyone in organisation has same objectives
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Responsibility Accounting Managers should be held responsible for those items - and only those items - that they can actually control to a significant extent. Responsibility accounting systems enable organizations to react quickly to deviations from their plans and to learn from feedback obtained by comparing budgeted goals to actual results The point is not to penalize individuals for missing targets .
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Choosing the Budget Period Operating Budget 2015 2016 2017 2018 Operating budgets ordinarily cover a one-year period corresponding to a company’s fiscal year. Many companies divide their annual budget into four quarters. A continuous budget is a process in which there is a rolling twelve-month budget; a new budget 12 months into the future) i added as each current month expires.
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