ch 7 practise - Chapter 9 Lecture Notes Profit Planning...

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Chapter 9 Lecture Notes Profit Planning BUDGET -detailed plan for acquiring and using resources over a specific time period - represents a plan for the future expressed in formal quantitative terms Differences between Planning and Controlling Planning involves developing objectives and preparing budgets to achieve them. Control involves the steps taken by management to achieve the objectives. Advantages of Budgeting 1. Communicates company objectives throughout the firm. 2. Focus on planning for the future. 3. Effectively allocates resources. 4. Reveals bottlenecks. 5. Coordinates department objectives with the firm. 6. Provides benchmarks for performance evaluation. Responsibility Accounting -hold managers responsible for those items they control -the responsible manager should understand and be able to explain discrepancies -feedback is used to correct discrepancies -goal is to make sure nothing “falls through the cracks” in the organization -shouldn’t use responsibility accounting to penalize the individual for missing targets Choosing a Budget Period -Annual -Continuous or perpetual Self-Imposed Budget Exhibit 9-1 page 371 -aka participative budget -managers across the whole organization are involved in preparing the budget -typically budget estimates are more accurate and reliable -motivation and commitment are higher due to personal goal setting -mangers cannot complain that the budget was unrealistic (since they were the one responsible for setting it) -Upper-management reviews the budget to make sure there isn’t budgetary slack built into the budget. Chapter 9 Spring 2010 Page 9-1
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- policy matters - coordinating budget preparation - top management THE MASTER BUDGET Exhibit 9-2 page 375 1. Sales budget (including a schedule of cash collections); 2. Production budget for manufacturing firms or Inventory purchase budget for merchandising firms; 3. Direct materials budget (including a schedule of expected cash disbursements for raw material); 4. Direct labor budget; 5. Manufacturing overhead budget; 6. Ending finished goods budget; 7. Selling and Administrative expense budget; 8. Cash budget; 9. Budgeted income statement; and 10. Budgeted balance sheet. Sales Budget -Sales Forecast -units -dollars -cash collection Schedule 1, page 378 Practice—Sales Budget and Expected Cash Collections Zan Industries sells an XLT for $10 per unit. All of Zan sales are on credit. Zan collects credit sales 40% in the month of sale, 50% in the month following sale and the last 10% is collected two months after the sale. Beginning A/R is $265,000 (made up of $40,000 remaining from May’s sales and $225,000 remaining from June’s sales…(June’s credit sales were $375,000). The marketing/selling department of Zan has submitted the following sales forecast for the third
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ch 7 practise - Chapter 9 Lecture Notes Profit Planning...

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