Ch 10 Student Using Budgets for Planning & Coordination Theme 2.pptx

Using Budgets for Planning and
Coordination
Contemporary Management Accounting Issues
Accounting 586
Chapter 10

Focus of the Theme
•
Theme 2 examines budgeting & control
•
The last chapter examined MACS particularly
with respect to

Focus of this Chapter
•
This chapter examines budgeting for planning
and coordination
•
The budget provides feedback and control

Importance
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Budgeting is one of the most universal and visible
components of a MACS
•
A budget is a primary source of feedback and control
in an organization
–
On budget, over budget, under budget
•
The budget is a practical expression of business
strategy
–
If you really want to see what is important in an
organization, look at the budget
•
The budgeting process can influence the budget and
the implementation of strategy

Review of Cost Concepts
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In the short run
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Fixed costs do not vary with quantity of output
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Fixed AKA capacity costs or joint costs
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Expenses on plant, property, & equipment
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Variable costs change or vary with quantity
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Only variable costs impact short run decisions
•
In the long run
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All costs are variable
–
All costs impact decisions

Background Concepts
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The annual budgeting process determines
planned levels of variable costs
•
The capital budgeting process (long range
budgeting) determines expenditures on plant,
property, & equipment
–
Provides capacity

Budgeting Basics
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Budgeting is a tool for
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Planning: what we want to have happen
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Control: standard to which actual performance is
compared (is corrective action needed?)
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The budget illustrates
–
Allocation of resources over a time horizon
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Expressions of planned inflows & outflows of money
over a time horizon
–
Whether planned operations will meet financial goals

Budgeting Basics
•
The budget is a practical expression of strategy
–
Annual budget: short run strategy
–
Multi-year budget: long term strategy
•
The budget communicates strategy in the
organization