Chapter 6 study guide - Chapter 6 Study Guide Planning, the...

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Chapter 6 Study Guide Planning, the balanced scorecard, and budgeting Budget: a plan for the future set in quantitative terms. Budgeting: the process of expressing a company’s goals and objectives from its bal- anced scorecard perspectives. Planning for future activities, as long as the benefits derived from the budget ex- ceed the cost. Planning: the primary purpose of a budget is to describe the financial ramifications of the future. Must determine the amount of customers wanting to buy a product and then determine the amount of resources needed to provide those customers with service. Customers must be considered or they can be lost. Communication and coordination: Functions and divisions must work together to operate effectively and efficiently (in- ternal perspective) interactions and plans must be understood by any organization as a whole. Resource allocation: Budgeting ensures that information is available to help determine where resources should go in a company. Important to understand value-added and nonvalue-added activities (should be re- duced). Evaluation and control: Budgets serve a useful benchmark for evaluation of performance. Comparing actual performance results to the budget. Budget may need revision, process may need ad- justment, or both. Companies learn from both their mistakes and their successes. 3 important aspects of the costs of budgeting: Time and resource requirements Cost is large in terms of human capital, as it takes many people and much time to create a budget. (budget director, department managers, budget commit- tees) Adaptability of departments and segments of the business Rigid adherence to a budget can limit the ability of functions or segments to take advantage of profitable opportunities. Opposite if company sticks to an unprofitable allocation of resources. Motivation and behavior of individuals. Individuals who develop budgets are affected by it, therefor a function must communicate with others to prevent inadequate functional budgets. Budgetary slack: the difference between what a person with input in the budgeting process chooses as an estimate of revenues or expenses and what
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is actually a realistic estimate. It is a deliberately introduced bias by those who fear the consequences of not meeting the budget. Mandated versus Participatory budgeting: Mandated budgeting: relies on predetermined standards set by upper-level man- agers. “Top-down” budgeting. Passed down to lower levels without input from them, Are in line with the goals and objectives of the upper level management. Based on standards that are predetermined by estimates of the quantity and
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This note was uploaded on 03/18/2011 for the course ACCT 2101 taught by Professor Clark during the Fall '10 term at Georgia State University, Atlanta.

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Chapter 6 study guide - Chapter 6 Study Guide Planning, the...

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