ch9 - Managerial Accounting Chapter 9 - Profit Planning...

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Managerial Accounting Chapter 9 - Profit Planning
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Chapter 9 Highlights What is a budget? What is its benefits? How do we prepare a budget set? Sales Budget Production Direct Materials Mfg Overhead Selling and Admin Cash How do we prepare a budgeted Income What is special about not for profit budgeting?
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Budgeting and Business Plans Business Plans are required by banks and other lending institutions – including strategies for both product and marketing and related budgets Budget = detailed plan outlining acquisition and use of financial resources over a specified period of time Often for financial institutions and other regulating bodies budgets covering 5 year or more are required
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Planning and Control Planning -- involves developing objectives and preparing various budgets to achieve these objectives. Control Control -- involves the steps taken by management that attempt to ensure the objectives are attained.
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Advantages of Budgeting Advantages Communicating plans Think about and plan for the future Means of allocating resources Uncover potential bottlenecks Coordinate activities Define goal and objectives
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Budgeting Responsibility accounting = each manager is held accountable for the results within their control For example individual in charge of purchasing should have a budget for the year with limits
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Participative Budgets An approach where managers prepare their own budgets The proposed budget is then reviewed by senior management and any issues are discussed and resolved normally by mutual agreement
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Participative Budgeting Increases commitment levels of all staff, each has some influence on what they are going to be held accountable for Each sections/divisions budgets then combined and reviewed by high level managers incentive plans can affect the budgeting process - one area might over budgets and another under budget “hero syndrome”
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Budget Types - Perpetual A continuous/perpetual budget always 12 month period once a month is complete another added on to the end
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Budgeting - Zero Based Often used by government and non- profits Instead of using prior years as a baseline managers are required to justify all costs as if this was a new project/department Approach often requires more decision documentation
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Budgeting Committee Budget Committee is often used in large companies Committee responsible for overseeing the budgeting process including: setting deadline, combining all divisions to prepare company budget and resolution of budget disputes
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Master Budget Collection of many sub-budgets to form budgets income statement, balance sheet and cash flow statement many sub-budgets are inter-related (ie sale budget and production)
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TYPES OF BUDGETS The master budget is a formal summary of the company’s plans. It sets specific targets for sales, production, material
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This note was uploaded on 06/20/2009 for the course ACC 406 taught by Professor Unknown during the Summer '09 term at Ryerson.

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ch9 - Managerial Accounting Chapter 9 - Profit Planning...

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