Chapter%2010%20-%20ACCT%202332%20-%20spring%202010

Chapter%2010%20-%20ACCT%202332%20-%20spring%202010 -...

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Chapter Ten Chapter Ten BUDGETARY PLANNING AND CONTROL
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Objectives Objectives 1. Discuss the use of budgets in planning and control. 2. Prepare key budget schedules that make up the master budget. 3. Explain why flexible budgets are needed for performance evaluation. 4. Discuss the conflict between planning uses and control uses of budgets.
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Use of Budgets in Planning and Control Use of Budgets in Planning and Control The budget may be thought of as a set of numbers which limit spending, or which provide quantitative goals we agree to adhere to or achieve. The entire planning and control process of many companies is built around budgets .
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Planning Planning The process of developing a budget forces managers to: Prioritize Goals. Evaluate Objectives. Specify means of achieving goals or objectives. Budgets are also useful because they enhance communication and coordination. Planning ahead enables you to obtain resources more economically.
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Control Control Budgets are useful because they provide a basis for evaluating performance. Performance evaluation is carried out by comparing actual performance with planned or budgeted performance. Significant deviations from planned performance are examined more closely (management by exception).
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Developing the Budget Developing the Budget Budgets may be prepared for Single Departments. Larger Divisions of the company. The Company as a whole. At corporate level often there is a Budget Committee responsible for approval of the budget: made up of senior managers CFO and Controller.
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Developing the Budget Developing the Budget (Continued) (Continued) Top-down approach is where budget objectives are set by top management, and subordinates are instructed to achieve results dictated from the top. Bottom-up approach is where lower-level managers and other personnel are the primary source of information used in setting the budget.
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Budget Time Period Budget Time Period Budget time periods range from monthly to several years or more. Often, the main budget process is the annual one. There is an inverse relationship between: Length of the budget period. Detail contained within the budget. The detailed budget consists of line items, which are categories of expenses controlled by a budgeted number or constraint.
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Zero Base Budgeting Versus Incremental Budgeting Budgeting Zero Base Budgeting (ZBB) is a method of budget preparation which begins each period with a clean slate. Managers must start from zero and completely justify budget items every period. Incremental budgeting uses last year’s numbers as the starting point, increases some line items while cutting others. Complete zero base budgeting forces examination of all
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Chapter%2010%20-%20ACCT%202332%20-%20spring%202010 -...

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