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
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Theme 2 examines budgeting & control
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The last chapter examined MACS particularly
with respect to
–
Behavioral implication

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

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

Background Concepts
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In the short run
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Fixes costs do not vary with quantity of output
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Fixed AKA capacity costs or joint costs
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Expense on plant, property and equipment
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Variable costs change or vary with quantity
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Only variable costs impact short run decisions
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In the long run
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All costs are variable
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All costs impact decisions

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

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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(comparison of planned/ budgeted to actual budget variances)
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The budget illustrates
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Allocation of resources over a time horizon
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Expansion of planned inflows & outflows of money over a time
horzon
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Whether planned operations will meet financial goals

Budgeting Basics
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