Week 5 Budgeting

Week 5 Budgeting - Learning Objectives Budgeting and...

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Budgeting and Responsibility Accounting Accy211: Management Accounting II Autumn Session 2009 1 Learning Objectives z Describe what the master budget is and explain its benefits z Describe the advantages of budgeting. z Prepare the operating budgets z Use financial planning models in sensitivity analysis z Use kaizen budgeting and how its is used for cost management z Describe Activity Based Budgeting z Describe responsibility centers and responsibility accounting 2 Budget Defined z The quantitative expression of a proposed plan of action by management for a specified period, and z An aid to coordinating what needs to be done to implement that plan z May include both financial and nonfinancial data 3 Budgeting Process Planning (Goals for the current period) Actions Performance Evaluation Budgets (Financial and operating targets of the goals) Accounting System (Actual Results) Performance Reports (Variances) Feedback Control 4 The Ongoing Budget Process: 1. Managers and accountants plan the performance of the company, taking into account past performance and anticipated future changes 2. Senior managers distribute a set of goals against which actual results will be compared 3. Accountants help managers investigate deviations from budget. Corrective action occurs at this point 4. Managers and accountants assess market feedback, changed conditions, and their own experiences as plans are laid for the next budget period 5 Advantages of Budgets z Provides a framework for judging performance z Motivates managers and other employees z Promotes coordination and communication among subunits within the company 6 Page 1 of 11
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Time Coverage of Budgets Budgets typically have a set time period (month, quarter, year). This time period can itself be broken into subperiods. The most frequently used budget period is one year. Businesses are increasingly using rolling budgets. 7 The Master Budget Master Budget Operating Decisions Financial Decisions Expresses management’s operating and financial plans for a specified period and comprises a set of budgeted financial statements z Operating Budget – building blocks leading to the creation of the Budgeted Income Statement z Financial Budget – building blocks based on the Operating Budget that lead to the creation of the Budgeted Balance Sheet and the Budgeted Statement of Cash Flows 8 Basic Operating Budget Steps 1. Prepare the Revenues Budget 2. Prepare the Production Budget (in Units) 3. Prepare the Direct Materials Usage Budget and Direct Materials Purchases Budget 4. Prepare the Direct Manufacturing Labor Budget 9 Basic Operating Budget Steps 5. Prepare the Manufacturing Overhead Costs Budget 6. Prepare the Ending Inventories Budget 7. Prepare the Cost of Goods Sold Budget 8.
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This note was uploaded on 06/16/2010 for the course ACC 211 taught by Professor Aerad during the Spring '08 term at Uni. West.

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Week 5 Budgeting - Learning Objectives Budgeting and...

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