Chapter 8 - Chapter 8 Profit Planning Suggested Homework:...

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Chapter 8 Profit Planning Suggested Homework: E8-1 thur E8-7; P8-9; P8-11 thru P8-14
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The Basic Framework of  Budgeting 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  activity is known as  budgetary control .
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Planning and Control Planning  –  involves  developing  objectives and  preparing various  budgets to achieve  these objectives. Control   –  involves the steps  taken by  management that  attempt to ensure  the objectives are  attained.
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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
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Responsibility Accounting       Managers should be held responsible for  those items — and  only  those items —  that the manager can actually control to a significant extent.
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Choosing the Budget Period Operating Budget 2005 2006 2007 2008 The annual operating budget  may be divided into quarterly or monthly budgets. A continuous budget is a 12-month budget that rolls forward one month (or quarter) as the current month (or quarter) is completed.
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Self-Imposed Budget A budget is prepared with the full cooperation and participation of managers at all levels. A participative budget is also known as a  self-imposed budget . 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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Advantages of Self-Imposed  Budgets 1. Individuals at all levels of the organization are  viewed as members of the team whose judgments  are valued by top management. 2. Budget estimates prepared by front-line managers  are often more accurate than estimates prepared by  top managers. 3. Motivation is generally higher when individuals  participate in setting their own goals than when the  goals are imposed from above. 4. A manager who is not able to meet a budget  imposed from above can claim that it was  unrealistic. Self-imposed budgets eliminate this  excuse.
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Self-Imposed Budgets Most companies do not rely exclusively upon  Most companies do not rely exclusively upon  self-imposed budgets in the sense that top  self-imposed budgets in the sense that top  managers usually initiate the budget process  managers usually initiate the budget process  by issuing broad guidelines in terms of overall  by issuing broad guidelines in terms of overall  profits or sales.
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This note was uploaded on 03/05/2010 for the course ACCT 285 taught by Professor Carver during the Fall '08 term at Iowa State.

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Chapter 8 - Chapter 8 Profit Planning Suggested Homework:...

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