Test2 - CHAPTER 6 MASTER BUDGET AND RESPONSIBILITY...

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CHAPTER 6 MASTER BUDGET AND RESPONSIBILITY ACCOUNTING LEARNING OBJECTIVES Understand what a master budget is and explain its benefits Describe the advantages of budgets Prepare the operating budget and its supporting schedules Use computer-based fi nancial planning models in sensitivity analysis Explain kaizen budgeting and how it is used for cost management Prepare an activity-based budget Describe responsibility centers and responsibility accounting Explain how controllability relates to respon sibility accounting CHAPTER OVERVIEW Chapter 6 describes a major feature of management planning and control systems, budgets. The importance of satisfying customers and succeeding in the marketplace compels the use of a common accounting tool for planning and controlling, budgeting. As noted in the chapter, “Few businesses plan to fail, but many of those that flop, failed to plan.” The chapter describes how budgeting is used in implementing plans developed through strategic planning, assisting managers in their planning function. Chapter 7 will describe how budgets aid managers in their control function. The wise and skillful administration of the budget is what gives budgets value because budgets, in themselves, are neither good nor bad. The report models used in budgeting are familiar, as they are the basic financial statements. The statements are approached from a different perspective, as typically projected sales are the starting point for preparing a budget. In costing systems studied in the previous two chapters, sales are the result of operations rather than the beginning consideration. Preparation of an operating budget is illustrated. Cash budgeting, a part of financial budgeting, is illustrated in the appendix to the chapter. The theme of continuous improvement is featured through a description of kaizen budgeting. For organizations that use activity-based costing and activity-based management, activity-based budgeting works back through the activity-based costing system using the s ame defined activities and relationships. Responsibility accounting is introduced as a means of coordinating the efforts of all employees in an organization to attain the goals described in the master budget. The notion of controllability is addressed.
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The chapter closes with a crucial aspect of budgeting – the human factor. The importance of the role of people in the budgeting process is acknowledged throughout the chapter. CHAPTER OUTLINE Budgeting – common accounting tool companies use for plannin g and controlling to satisfy customers and succeed in the marketplace Budgets and the budgeting cycle Budgets—assisting managers in their planning function Quantitative expression of a proposed plan of action by management for a specified period An aid to coordinating what needs to be done to implement that plan Budgeting cycle: guide to well-managed organizations {thought process/decision making} Planning the performance of company as a whole as well as subunits: management at all levels
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Test2 - CHAPTER 6 MASTER BUDGET AND RESPONSIBILITY...

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