1 administrative office management, 8/e by zane quible ©2005 pearson education, inc. pearson...
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Administrative Office Management, 8/eby Zane Quible
©2005 Pearson Education, Inc.Pearson Prentice HallUpper Saddle River, NJ 07458
Budgetary and Cost ControlBudgetary and Cost Control
Chapter 25Chapter 25
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Administrative Office Management, 8/eby Zane Quible
©2005 Pearson Education, Inc.Pearson Prentice HallUpper Saddle River, NJ 07458
Budgeting Is a planning process.
BudgetaryControl
Is the process of regulating the operatingbudgets of the organization.
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Administrative Office Management, 8/eby Zane Quible
©2005 Pearson Education, Inc.Pearson Prentice HallUpper Saddle River, NJ 07458
Purposes of BudgetingPurposes of Budgeting
Helps ensure the organization’s operations are performed more efficiently.
Helps management maintain the cost- effectiveness of the organization’s operations.
Helps the organization better plan for the future.
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Administrative Office Management, 8/eby Zane Quible
©2005 Pearson Education, Inc.Pearson Prentice HallUpper Saddle River, NJ 07458
Advantages of Budgeting(1 of 2)
Advantages of Budgeting(1 of 2)
1. It requires adequate management consideration of the organization’s policies.
2. It requires that department-level managers develop practices that facilitate the attain- ment of budgetary goals.
3. It requires that managers identify the resources necessary for accomplishing the organization’s goals.
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Administrative Office Management, 8/eby Zane Quible
©2005 Pearson Education, Inc.Pearson Prentice HallUpper Saddle River, NJ 07458
Advantages of Budgeting(2 of 2)
Advantages of Budgeting(2 of 2)
4. It helps management make accurate, timely decisions regarding various organizational operations.
5. It helps management determine which functions are not operating efficiently.
6. It helps management determine which functions are experiencing difficulty in achieving goals and objectives.
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Administrative Office Management, 8/eby Zane Quible
©2005 Pearson Education, Inc.Pearson Prentice HallUpper Saddle River, NJ 07458
Limitations of BudgetingLimitations of Budgeting
1. Because budgeting is based on estimates, the validity of the budget is, to a large extent, determined by the accuracy with which the estimates are made.2. The operating effectiveness of an organization is clearly dependent upon how well management is able to motivate employees to operate within the budgeted allowances.3. The effectiveness of the budget is, to a large extent, dependent upon the accuracy with which budget revisions are made.
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Administrative Office Management, 8/eby Zane Quible
©2005 Pearson Education, Inc.Pearson Prentice HallUpper Saddle River, NJ 07458
Prerequisites for Successful BudgetingPrerequisites for Successful Budgeting
Proper Organization
Financial Data
Commitment of Top Management
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Administrative Office Management, 8/eby Zane Quible
©2005 Pearson Education, Inc.Pearson Prentice HallUpper Saddle River, NJ 07458
Proper Organization
Requires the presence of these characteristics: 1. The proper group of tasks within functions, definitive lines of authority, and areas of responsibility.2. Definitive lines of authority and areas of responsibility.3. Lines of communication.
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Administrative Office Management, 8/eby Zane Quible
©2005 Pearson Education, Inc.Pearson Prentice HallUpper Saddle River, NJ 07458
Financial Data
Unless needed data are available, the basis for budgetdevelopment does not exist.Types of financial data needed:
1. Number of units sold during the previous financial period.2. The relationship between the number of units sold and the cost incurred in producing these units.3. Emerging financial trends.
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Administrative Office Management, 8/eby Zane Quible
©2005 Pearson Education, Inc.Pearson Prentice HallUpper Saddle River, NJ 07458
Commitment of Top Management
For the process to work well, managementmust be committed to the use of the
budget as a control mechanism.
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Administrative Office Management, 8/eby Zane Quible
©2005 Pearson Education, Inc.Pearson Prentice HallUpper Saddle River, NJ 07458
Elements of Budget PreparationElements of Budget Preparation
Determining the Budget Period
Developing the Budget
Revising the Budget
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Administrative Office Management, 8/eby Zane Quible
©2005 Pearson Education, Inc.Pearson Prentice HallUpper Saddle River, NJ 07458
Determining the Budget Period
Involves determining the length of the period, which generally coincides with the organization’s fiscal period.
Length should be sufficiently long to compensate for any seasonal fluctuations.
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Administrative Office Management, 8/eby Zane Quible
©2005 Pearson Education, Inc.Pearson Prentice HallUpper Saddle River, NJ 07458
Developing the Budget
Two types of budgets:
Departmental Budget
Master Budget
Is a unit budget.
Is a composite of unit budgets.
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Administrative Office Management, 8/eby Zane Quible
©2005 Pearson Education, Inc.Pearson Prentice HallUpper Saddle River, NJ 07458
Responsibility for Budget PreparationMust Be Assigned
Responsibility for Budget PreparationMust Be Assigned
In larger organizations, it is often the responsibility of the controller or treasurer.
In other organizations, it is often the responsibility of the vice president who is concerned with the organization’s financial areas.
A budget committee is also involved in many instances.
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Administrative Office Management, 8/eby Zane Quible
©2005 Pearson Education, Inc.Pearson Prentice HallUpper Saddle River, NJ 07458
Types of Office Costs(1 of 2)
Types of Office Costs(1 of 2)
Fixed CostsCosts that remain constant regardless of the number ofunits produced.
Rent, insurance, and taxes are examples.
Variable CostsCosts vary proportionately inrelation to the output levels.
Materials and supplies are examples.
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Administrative Office Management, 8/eby Zane Quible
©2005 Pearson Education, Inc.Pearson Prentice HallUpper Saddle River, NJ 07458
Types of Office Costs(2 of 2)
Types of Office Costs(2 of 2)
SemivariableCosts
Costs increase as productionincreases but not in a directproportion to productionincreases.
Photocopier charges are an example.
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Administrative Office Management, 8/eby Zane Quible
©2005 Pearson Education, Inc.Pearson Prentice HallUpper Saddle River, NJ 07458
Guiding Principles of Budget PreparationGuiding Principles of Budget Preparation
1. Employee participation in budget preparation is advantageous.2. Budget should reflect realistic estimates of operating costs.3. Budget must provide for unforeseen circumstances.4. Employees should feel committed to the budget.
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Administrative Office Management, 8/eby Zane Quible
©2005 Pearson Education, Inc.Pearson Prentice HallUpper Saddle River, NJ 07458
Revising the BudgetRevising the Budget
Is generally required because of uncontrolled orunforeseen circumstances that require theexpenditure of the organization’s financialresources.
Techniques for Revising the Budget
Techniques for Revising the Budget
Periodic reviewProgressive review
Moving review
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Administrative Office Management, 8/eby Zane Quible
©2005 Pearson Education, Inc.Pearson Prentice HallUpper Saddle River, NJ 07458
Periodic Review
Budget is revised at predetermined times for the remainder of the year.
Budget can be reviewed every month, every two months, every quarter, etc.
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Administrative Office Management, 8/eby Zane Quible
©2005 Pearson Education, Inc.Pearson Prentice HallUpper Saddle River, NJ 07458
Progressive Review
Uses standard time spans, perhaps 6 months.
Involves revising the budget at specified times and for a constant length of time.
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Administrative Office Management, 8/eby Zane Quible
©2005 Pearson Education, Inc.Pearson Prentice HallUpper Saddle River, NJ 07458
Moving Review
Budget is revised every month.
As one month is completed, the same month for the next year is included in the revision.
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Administrative Office Management, 8/eby Zane Quible
©2005 Pearson Education, Inc.Pearson Prentice HallUpper Saddle River, NJ 07458
Zero-Based Budgeting(1 of 2)
Is a budgeting concept that requires the re- evaluation of every program and expenditure each time a year’s budget is prepared.
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Administrative Office Management, 8/eby Zane Quible
©2005 Pearson Education, Inc.Pearson Prentice HallUpper Saddle River, NJ 07458
Zero-Based Budgeting(2 of 2)
Involves these steps: 1. Describe each discrete organizational activity in a decision package.
2. Evaluate and rank these decision packages in terms of a cost-benefit analysis.3. Allocate resources on the basis of need.
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Administrative Office Management, 8/eby Zane Quible
©2005 Pearson Education, Inc.Pearson Prentice HallUpper Saddle River, NJ 07458
Guidelines to Follow When PreparingBudget Reports
Guidelines to Follow When PreparingBudget Reports
1. Exception situations should be pointed out.2. When presenting figures in a report, a comparison base should be given.3. To assist the reader, information should be summarized whenever possible.4. When appropriate, reports should include interpretative information.5. Reports should be standardized as much as possible.
Preparing the budget report is a frequentpart of budgetary control.
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Administrative Office Management, 8/eby Zane Quible
©2005 Pearson Education, Inc.Pearson Prentice HallUpper Saddle River, NJ 07458
Common Sections of Budget Reports
Purpose of the Report
Presentation of Financial Data
Summary
Conclusions
Recommendations
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Administrative Office Management, 8/eby Zane Quible
©2005 Pearson Education, Inc.Pearson Prentice HallUpper Saddle River, NJ 07458
Cost Control
Is concerned with the expenses incurred in performing various office operations.
Is also concerned with keeping expenditures as low as possible.
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Administrative Office Management, 8/eby Zane Quible
©2005 Pearson Education, Inc.Pearson Prentice HallUpper Saddle River, NJ 07458
Objectives of Cost Control
1. To develop standard costs for various office operations.2. To develop, within the employees, a desire to be cost conscious.3. To assist in the development of efficient operating procedures.4. To allocate the costs of operations to the appropriate functions.5. To identify inefficient operations.
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Administrative Office Management, 8/eby Zane Quible
©2005 Pearson Education, Inc.Pearson Prentice HallUpper Saddle River, NJ 07458
Techniques for Controlling Office Costs
Standard Breakdowns
Standard Costs
Cost Analysis Studies
Taking Corrective Action
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Administrative Office Management, 8/eby Zane Quible
©2005 Pearson Education, Inc.Pearson Prentice HallUpper Saddle River, NJ 07458
Cost Breakdowns
This technique involves determining what percentage of the total cost of an operation is classified as a salary or a labor cost, for example.
Includes Several CategoriesIncludes Several Categories
SalariesSupplies and/or Materials
Overhead
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Administrative Office Management, 8/eby Zane Quible
©2005 Pearson Education, Inc.Pearson Prentice HallUpper Saddle River, NJ 07458
Standard Costs
This technique involves determining the unit costs of various office operations.
Once the unit cost is determined, it can be compared with comparable standard costs.
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Administrative Office Management, 8/eby Zane Quible
©2005 Pearson Education, Inc.Pearson Prentice HallUpper Saddle River, NJ 07458
Cost Analysis Studies
This technique involves comparing the cost of a current period’s operations with those of a prior period.
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Administrative Office Management, 8/eby Zane Quible
©2005 Pearson Education, Inc.Pearson Prentice HallUpper Saddle River, NJ 07458
Taking Corrective Action
When analysis indicates that corrective action is necessary, those in positions of responsibility must take corrective action.
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Administrative Office Management, 8/eby Zane Quible
©2005 Pearson Education, Inc.Pearson Prentice HallUpper Saddle River, NJ 07458
Areas for Which Office Costs Canand Should Be Controlled
Areas for Which Office Costs Canand Should Be Controlled
PersonnelSupplies and Materials
EquipmentWork Processes
Overhead
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Administrative Office Management, 8/eby Zane Quible
©2005 Pearson Education, Inc.Pearson Prentice HallUpper Saddle River, NJ 07458
Personnel
The cost of personnel is likely to be thelargest budget item; therefore, personnelcosts provide greater flexibility than doother areas.
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Administrative Office Management, 8/eby Zane Quible
©2005 Pearson Education, Inc.Pearson Prentice HallUpper Saddle River, NJ 07458
Supplies and Materials Costs
This involves keeping supplies and materials costs to a minimum, minimizing the number of different forms used, and using equipment that facilitates the interchange of supplies.
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Administrative Office Management, 8/eby Zane Quible
©2005 Pearson Education, Inc.Pearson Prentice HallUpper Saddle River, NJ 07458
Equipment Costs
This involves purchasing reliable equipment as well as the early trade-off of equipment that has higher-than-average repair charges.
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Administrative Office Management, 8/eby Zane Quible
©2005 Pearson Education, Inc.Pearson Prentice HallUpper Saddle River, NJ 07458
Work Process Costs
Special attention should be devoted to developing efficient work processes.
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Administrative Office Management, 8/eby Zane Quible
©2005 Pearson Education, Inc.Pearson Prentice HallUpper Saddle River, NJ 07458
Overhead Costs
Because some overhead costs are variable, controlling them should be a conscious effort of employees.