Description
Chapter 9
Pg. 381386 , 309
Practice managerial accounting final exercises
From Ex. 932, 43, 44, 45 and 50 review questions Ex.1(18) Ex 2 (111 ,3440) Description of budgeting
Helps business owner and managers to plan ahead by comparing what acutely happed to what s expected in the budget
Good for small busnesses and nonprofits
Budgeting and planning and control
∙ Planning and control are linked
∙ Planning is looking ahead to see what the company should do to reach a goal ∙ Control is looking backwards and comparing to previously planned outcomes ∙ Budgets are financial plans for the future and are a key component of planning ∙ Befor making a budget an organization should make a strategic plan
We also discuss several other topics like What are the 3 types of delta rivers?
∙ Strategic Plan makes the direction an organization will go in the future for activities and
operations usually in a 5year span
∙ Overall strategy is translated into the long and shorter objectives
Planning Cycle Control Cycle
Strategic Plan
Planni
Long-term
Don't forget about the age old question of What is the difference between interference and diffraction?
Short-Term
v
Monitoring of
Actual Activity
Short-Term Plan
Budgets
Executi
Comparison of Actual with Planned
Feedback
If you want to learn more check out What problems does neuroscience pose for the instrumentalist?
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Investigation
Advantages of budgeting
A budgetary system gives an organization several advantages Planning
Corrective
Engorges people to develop an overall direction, foresee problems, and developed future policies
Info for decision making
Improves decision making
Better decisions keep customers happy while still providing a profiteer living for others who work at the establishment
Standards for performance evaluation
Control is achieved by comparing actual results with budgeted results on a periodic basis Difference between actual and planned results is feedback We also discuss several other topics like What are the forms of integration at the farmer?
Improved communication and coordination
For employees’ tube aware of their particular role and to acheves the objectives Organization must all work together to achieve organizational objectives
The Master budgets
Master budget is the financial plan for the organization as a whole usually for 1 year Contiguous budget is a moving 12month budget as one month goes the next is added (never below or above 12 months)
Direction and coordination
Budget committee revise budget,provied guidelines and goals, resolves differences,
approves the final budget, monitors performance of orginazation as the year goes on. Controller =Budget director
Budget director: responsible for directing and coordinating the organization’s overall budgeting process
Major components of the master budget
A master budget can be divided into operating and financial
Operating budgets are incomegenerating activities ( sales, production, finish good
inventory
Ultimate outcome is pro forma or budget income statement
Financial Budget inflows and outflows of cash and overall financal position Expected financial position end of budget period shown in budgeted or pro We also discuss several other topics like Enumerate the types of intermolecular forces.
forma, balace sheet
Master Budget and Its Interrelationships
Sales
Budget
Production
Direct
Materials
Purchase
Direct
Labor
Budget
Overhea
d
Budget
Long-Term Sales Forecast
Selling and
Administrative Expenses
Ending Finished
Goods Inventory
Budget
Unit Cost
Cost of Goods
Budgeted Income
Statement
Cash
Budgete
d
Budgeted
Statement of Cash Flows
Capital
Budget
Preparing the operating budget
Consist of
Sales budget, production budget, direct material Purchas, direct labor budget, overhead budget, sell and admin expels, ending finish good invent budget, cost and goods sold budget
Sales budget
∙ Sales budget is approved by the budget committee and makes expected sales in units and dollars ∙ Are the biases for all the other operating budgeters and most of the financial budgets
∙ Sales forecast is just the initial estimate often adjusted by the budget committee Preparing the financial budget
Cash budget
∙ Critical in managing a business
∙ Knowing when cash inflows and outflows occur, then a manager can plan to borrow cash when
needed to , repay loans during periods of excess cash
∙ Cash Budget includes cash receipts, disbursements, any excess or deficiency of cash and
financing
∙ Cash budget = cash inflows cash outflow
Cash availible
Cash available consist to get beginning cash balance and the expected cash receipts Cash Availible = Beginning cash balance + expected Cash Receipts
Cash disbursements
The cash disbursement section lists all planned cash outlays for the period
Expenses that do not require cash outlay are exclude
Typically, not included in the dissents section is intrest on shortterm borrowing Intrest expenditure is researched for the section on loan repayment
Cash excess or deficiency
Adding lines show any borrowing or repayment necessary
Preliminary ending cash balance is called Cash Excess or cash deficiency
Minimum cash balace is simply the lowest amount of cash on hand that the firm finds acceptable
Borrowings and repayments
Company converts preliminary cash balance line to cash deficiency line may this may be
borrowing or repairing money
Excess cash is availible it sows planned repayments, incuding expense
Ending cash balance
Last line of the cash budget planned amount of cash on hand at the end of the period Ending Cash balance= cash available expected cash disbursements
Preparing a cash budget
Only cash expenditures are included in the cash budget
Expenses included depreciation expense, is a noncash expense depreciation expense subtracted from totals to yield and for selling and administrative expose
Using budgets for performance evaluations
Alignment of managerial and orginzational goals is referred to as goal congruence Dysfunctional behavior is indival behavior that is in basic conflict with the goals of the orginazation ∙ Ideal budgetary system acheves complet goal congruence and creates a drive in manager to succeed goals in an ethical manar
Frequent Feedback on Performance
∙ Know how doing as the year progresses this helps to take corrective actions and to change plans as necissary
Monetary and Nonmonetary Incentives
∙ Incentives are an organization used to influence a staff to ecert effort to achea a goal ∙ Monetary incentive used to control staf tendency to shirnk and waste recostes = salary
increases , bonuses and promotions
∙ Nonmonetary incentives incuding job enrichment increased responsibility and autonomy regognition programs , can be use to enhancve a budgetary control system
Participative Budgeting
∙ Particvipative budgeting allows subordinate managers consideravle say in how the budgets are
established
∙ fosters creativity
∙ sub managers creat the budget
Particpative budgeting has three potecial problems:
o Setting standads that are either too high or too low
o Bulinding slack into the budget
o pseudoparticipation
Standard Setting
Some may set the budget either to lose or too tight
Mistake in setting the budget result in decreased performance levels
Too easily achieved they might lose intrest and performance
Budgetary Slack
Budgetary slack ( padding the budget ) a manger deliberate underestimates revenue or overestimated in an effort to make the future period paper less attractive in the budget
than they think it will be in reality
Increases likelihood that it will acheves the budget
Pseudoparticipation
Pseudoparticipation=Top management assumes total control of the budget process, seeking superficial participation form lower employees
Realistic Standards
∙ Gauge performance should be based on realistic contains and expectations reflects operating
realities
o Actual levels of activity: Flexible budgets to ensure cost realistically compare with cost
of activity
o Seasonal Variations: Interim budgets reflect seasonal effects
o Efficiencies: Budgetary cuts based on planned increases of efficiency not acrossthe
board reductions
o General economic trends: general economic need to be considered
significant increase in sales when recession projected foolish and dangerous Controllability of costs
∙ Controllable costs costs manager can influence
∙ If noncontrollable cost put in budget of subordinate managers to help understand costs need to be coved be separated controllable costs labeled as noncontrollable
Multiple measures of performance
∙ Myopic behavior – when manger take actions improve budgetary perforce in short run but bring longrun harm to the firm.