ch.9 - 1 Click to edit Master subtitle style ACIS 2116 -...

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Unformatted text preview: 1 Click to edit Master subtitle style ACIS 2116 - Chapter 9 The Use of Budgets in Planning and Decision-Making 2 Budgeting A Budget is a detailed plan What resources must be acquired What resources must be used Specified period of time Management task NOT bookkeeping task. 3 Budgeting Planning develop objectives prepare budgets to achieve objectives. Integral part of the planning , operating , and control activities of managers. 4 Budgeting Operating Day-to-day management decisions 5 Budgeting Control Ensure that objectives are met. Compare actual results to budget. 6 Budgeting for Cash May be most important part of budgeting. Cash on hand Collection of cash from customers Disbursement of cash for manufacturing costs or purchases of inventory Sale of Product 7 Budgeting for Cash Timing of cash inflows and outflows is extremely important. Companies must have enough cash to: Pay suppliers, creditors, and employees Pay dividends Buy fixed assets Cash budgets help managers determine if borrowing is necessary or if excess cash can be invested. 8 Zero-Based Budgeting Means building budget from ground up. Cannot simply add percentage increase to last years numbers. Time consuming and costly to use. Requires managers to justify all budgeted expenditures, not just changes in the budget from the prior year. 9 Participatory Budgeting Middle Manager Middle Manager Top Managers Departmental Manager Departmental Manager Departmental Manager Departmental Manager A bottom-up process. Each new level of management reviews the budget and negotiates changes. 10 Time Period Companies may use monthly, quarterly, and annual budgets. 2007 2008 2009 2010 An annual budget may be divided into quarterly or monthly budgets. Some companies prepare continuous or rolling budgets. When one month or quarter ends, another is automatically added at the end. 11 Advantages of Budgeting Forces managers to think about and plan for the future. Helps managers: Define goals and objectives. Coordinate activities. Decide how to allocate resources. Identify and deal with potential bottlenecks. Communicate plans. 12 Advantages of Budgeting Can motivate employees Can help employees become more cost conscious 13 Negative Behavioral Factors Managers are often evaluated and compensated according to whether the budget is met. This creates incentives for managers to: Lower targets (make them easier to reach) Raise estimated costs Shift revenues and expenses to another period 14 Master Budget An interrelated set of budgets Must start with forecasting sales 15 The Master Budget for a Manufacturing Pr oductio n Budget Selling and Administr ati ve Budget Material Purchases Budget M anufactur i ng Over head Budget Dir ect Labor Budge t Cash Budge t Sales Budge t Budgeted Financial Statements 16...
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ch.9 - 1 Click to edit Master subtitle style ACIS 2116 -...

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