ACIS 2116 Chapter 10 Part 1 Slides

ACIS 2116 Chapter 10 Part 1 Slides - The Use of Budgets in...

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1 ACIS 2116 - Chapter 10 Part 1 The Use of Budgets in Planning and Decision-Making
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2 Budgeting A Budget is a detailed plan What resources must be acquired What resources must be used Specified period of time Management task – NOT bookkeeping task.
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3 Budgeting Planning develop objectives prepare budgets to achieve objectives. Integral part of the planning, operating,  and control activities of managers.
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4 Budgeting Operating Day-to-day management decisions
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5 Budgeting Control Ensure that objectives are met. Compare actual results to budget.
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6 Budgeting for Cash May be most important part of budgeting. Cash on  hand Collection of  cash from  customers Disbursement of cash for  manufacturing costs or  purchases of inventory Sale of  Product
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7 Zero Based Budgeting Means building budget from ground up. Cannot simply add percentage increase to last year’s numbers. Time consuming and costly to use. Requires managers to justify all budgeted expenditures, not just changes in the budget from the prior year.
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8 Participatory Budgeting Prepared with the full cooperation and Prepared with the full cooperation and participation of managers at all levels. participation of managers at all levels. S u p e r v i s o r S u p e r v i s o r M a n a g e m e n t S u p e r v i s o r S u p e r v i s o r T o p M a n a g e m e n t
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9 Operating Budget Operating Budget Operating Budget 2004 2005 2006 2007 The annual operating budget The annual operating budget may be divided into quarterly may be divided into quarterly or monthly budgets. or monthly budgets. Used to plan for the short term. (usually the longest is for one year)
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10 Advantages of Budgeting Forces managers to think about and plan for the future. Helps managers: Define goals and objectives. coordinate activities. Decide how to allocate resources. Uncover potential bottlenecks. Communicate plans.
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11 Advantages of Budgeting Can motivate employees Can help employees become more cost conscious
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12 Negative Behavioral Factors Managers are often evaluated and compensated according to whether the budget is met. This creates incentives for managers to: Lower targets (make them easier to reach) Raise estimated costs Shift revenues and expenses to another period
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13 The Master Budget Production Budget Selling and Administrative Budget Direct Materials Budget Manufacturing Overhead Budget Direct Labor Budget Cash Budget Sales Budget Budgeted Financial Statements Ending Finished Goods Budget
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14 Budgeting Example The Hokie Company sells T-shirts with the The Hokie Company sells T-shirts with the Hokie Bird on them. Hokie Bird on them. Hokie is preparing budgets for the quarter Hokie is preparing budgets for the quarter ending March 31.
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ACIS 2116 Chapter 10 Part 1 Slides - The Use of Budgets in...

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