Chapter 13 - Chapter 13: Budgeting and Standard Cost...

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Chapter 13: Budgeting and Standard Cost Systems
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Budgeting A budget is a financial plan for a business. Objectives of budgeting: Establishing specific goals Executing plans to achieve the goals Periodically comparing actual results with the goals
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Establishing goals is part of the planning function of management. Executing actions to meet the goals is part of the directing function.
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Human Behavior and Budgeting Importance of setting a reasonable budget: Budgets set too tightly discourage employees when expectations are too high. Budgets set too loosely lead to budgetary slack – called “padding” the budget. Employees can develop a “spend it or lose it” mentality. Budgetary conflict can mean goals will not be met.
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Developing Budget Estimates Zero-based budgeting requires managers to estimate sales, production, and other data as though operations are being started for the first time. More common methods involve revising last year’s budget: Static budgeting Flexible budgeting
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Static Budgets Based on one activity level and do not change if circumstances change.
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Flexible Budgets Show expected results at various activity levels.
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Flexible budgeting adjustments produce lower actual-to-budget differences.
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Chapter 13 - Chapter 13: Budgeting and Standard Cost...

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