Warren%20SMChap21_06_.pdf - 245 CHAPTER 21 (FIN MAN);...

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Unformatted text preview: 245 CHAPTER 21 (FIN MAN); CHAPTER 6 (MAN) BUDGETING EYE OPENERS 1. The three major objectives of budgeting are (1) to establish specific goals for future op- erations, (2) to direct and coordinate plans to achieve the goals, and (3) to periodically compare actual results with the goals. 2. Managers are given authority and responsi- bility for responsibility center performance. They are then accountable for the perfor- mance of the responsibility center. 3. If goals set by the budgets are viewed as unrealistic or unachievable, management may become discouraged and may not be committed to the achievement of the goals, resulting in the budget becoming less effec- tive as a planning and control tool. 4. Budgeting more resources for travel than requested by department personnel is an ex- ample of budgetary slack. 5. A budget that is set too loosely may fail to mo- tivate managers and other employees to per- form efficiently. In addition, a loose budget may cause a “spend it or lose it” mentality, where excess budget resources are spent in order to protect the budget from future reductions. 6. Conflicting goals can cause employees or department managers to act in their own self- interests to the detriment of the organiza- tion’s objectives. 7. Zero-based budgeting is used when an or- ganization wishes to take a “clean slate” view of operations. It is often used when the or- ganization wants to cut costs by reevaluating the need for and usefulness of all operations. 8. A static budget is most appropriate in situations where costs are not variable to an underlying activity level. As a result, it is reasonable to plan spending on the basis of a fixed quantity of resources for the year. This will occur in some administrative functions, such as human resources, accounting, or public relations. 9. Computers not only speed up the budgeting process, but they also reduce the cost of budget preparation when large quantities of data need to be processed. In addition, by using computerized simulation models, man- agement can determine the impact of various operating alternatives on the master budget. 10. The first step in preparing a master budget is preparing the operating budgets, which form the budgeted income statement. The first operating budget to be prepared is the sales budget. 11. The production requirements must be care- fully coordinated with the sales budget to ensure that production and sales are kept in balance during the period. Ideally, manufac- turing operations should be maintained at 100% of capacity, with no idle time or over- time, and there should be neither excessive inventories nor inventories insufficient to fill sales orders. 12. Purchases of direct materials should be closely coordinated with the production bud- get so that inventory levels can be main- tained within reasonable limits....
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This note was uploaded on 07/17/2011 for the course ACCT 102 taught by Professor Martinez during the Summer '11 term at Rio Hondo College.

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Warren%20SMChap21_06_.pdf - 245 CHAPTER 21 (FIN MAN);...

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