Download - Master Budget and Responisbiltiy.ppt
-
8/17/2019 Master Budget and Responisbiltiy.ppt
1/68
-
8/17/2019 Master Budget and Responisbiltiy.ppt
2/68
Chapter Outline
• Budget and the Budget Cycle
• Advantages and disadvantages of budgeti
• Developing an operating budget
• Time coverage of operating budget anaspect of budgeting
• Responsibility accounting• Controllability
-
8/17/2019 Master Budget and Responisbiltiy.ppt
3/68
Learning Objectives
After completing this chapter students are to "
Describe the master budget and e!plain its
Describe the advantages and demerit of bu
$repare the operating and %inancial budgesupporting schedules&
Describe responsibility centers and responaccounting&e human aspects of budgeting
-
8/17/2019 Master Budget and Responisbiltiy.ppt
4/68
'ntroduction"Budgeting is the most (idely used actool for planning and coorgani)ations&
A budget is the *uantitative e!press
proposed plan of action by managemefuture time period and an aid coordination and implementation of th
-
8/17/2019 Master Budget and Responisbiltiy.ppt
5/68
Basic Terminologies
A budget:
's a #nancial or non#nancial e!pression of action for a speci#ed period
'denti#es the resources and commitments rachieve the organi)ation+s goals for an upcomi
Budgeting"
The process of preparing a budget ,obudgets- is called budgeting
-
8/17/2019 Master Budget and Responisbiltiy.ppt
6/68
The Budgeting $rocess
Budgeting is an important part organi)ation+s entire planning process
Budgets are the #nancial culminapredictions and assumptions about achionly #nancial but also non#nancial g
objectives .on#nancial performance goals and o
may include throughput customer satdefect minimi)ation and on/time deliver
-
8/17/2019 Master Budget and Responisbiltiy.ppt
7/68
Budgeting cont+d0
Budgets can help identify potential pro
achieving speci#ed organi)ational goobjectives&
By *uantifying potential di1culties andthem visible budgets can help managers to thin2 of (ays to overcom
di1culties before they are reali)ed&A (ell/prepared budget can also be an device to communicate objectives coand e!pectations to all organi)ational per
-
8/17/2019 Master Budget and Responisbiltiy.ppt
8/68
Budgeting cont+d0
4uch communication promotes understandin
is to be accomplished ho( those accomplishto be achieved and the manner in (hich resto be allocated
$articipation in the budgeting process helps ta spirit of cooperation motivate employees
a feeling of team(or2& 5mployee participation is needed to
integrate necessary information from variouas (ell as to obtain individual managerial coto the resulting budget&
-
8/17/2019 Master Budget and Responisbiltiy.ppt
9/68
Budgeting cont+d0
The budget sets the resource constrain(hich managers must operate for the ubudget period& Thus the budget becobasis for control/ling activities and usage&
The budgeting and planning procesconcerned (ith all organi)ational resoumaterial inventory supplies personfacilities and can be vie(ed from a long/short/term perspective&
-
8/17/2019 Master Budget and Responisbiltiy.ppt
10/68
Characteristics of a budget
A good budget is characteri)ed by the follo(in
$articipation" involve as many people as dra(ing up a budget&
Comprehensiveness" embrace the (hole org
4tandards" base it on established staperformance&
%le!ibility" allo( for changing circumstances
%eedbac2 " constantly monitor performance&
Analysis of costs and revenues" this can be d
basis of product lines departments or cost c
-
8/17/2019 Master Budget and Responisbiltiy.ppt
11/68
7hy Budgeting8
't is a vehicle of communication by mabout strategic plan to the entire organ
$rovides a frame(or2 for judging perfo9otivates employees and managers
4elf imposed participative budget
$romotes coordination and communicaBudgets force managers to thin2 aboplan for the future&
-
8/17/2019 Master Budget and Responisbiltiy.ppt
12/68
7hy Budgeting8
$rovides a means of allocating resothose parts of the organi)ation (hecan be used most e3ectively&Can uncover potential bottlenec2sthey occur
-
8/17/2019 Master Budget and Responisbiltiy.ppt
13/68
-
8/17/2019 Master Budget and Responisbiltiy.ppt
14/68
Strategic PlanStrategic Plan
-
8/17/2019 Master Budget and Responisbiltiy.ppt
15/68
4trategic planning
9anagers (ho plan on a long/range basisyears- are engaged in strategic planning&
Top/level management performs this proc(ith the assistance of several 2ey sta3 me
4trategic planning is not concerned (itday operations although the strategic pfoundation on (hich short/term planning i
-
8/17/2019 Master Budget and Responisbiltiy.ppt
16/68
4trategic planning
9anagers engaging in strategic should identify 2ey variables believthe direct causes of the achievementachievement of organi)ational goobjectives&
>ey variables can be internal ,uncontrol of management- or ,normally non/controllable by manag
-
8/17/2019 Master Budget and Responisbiltiy.ppt
17/68
Master Budget
's a detailed and comprehensive analys
#rst year of the long range plan& 't is static in the sense that it is based o
level of output demand
't summari)ed the planned activitie
subunits of the organi)ation& 't embraces the impact of both opera
#nancing decisions&
-
8/17/2019 Master Budget and Responisbiltiy.ppt
18/68
Master Budget
Operating decisions" deals (ith ho(use of the limited resources organi)ation&
%inancing decisions" deals (ithobtain the funds to ac*uireresources&
-
8/17/2019 Master Budget and Responisbiltiy.ppt
19/68
Operating budgetOperating budget
,$ro#t plan-& & &,$ro#t plan-& & &%inancial budge%inancial budge
Master BudgetMaster Budget
%ocuses on the 'ncome%ocuses on the 'ncome
4tatement and supporting4tatement and supporting
schedules or budgetedschedules or budgeted
e!penses&e!penses&
Focuses on the efects thFocuses on the efects th
budget and other plans wbudget and other plans w
balancesbalances
-
8/17/2019 Master Budget and Responisbiltiy.ppt
20/68
Continuous BudgetContinuous Budget
Rolling budgets...Rolling budgets...
are a common oare a common o
master budgets master budgets
add a month inadd a month in
uture as the mouture as the mo
just ended is dro just ended is dro
-
8/17/2019 Master Budget and Responisbiltiy.ppt
21/68
Types of BudgetsTypes of Budgets
1999 2000 2001
Continuousor
Rolling Budget
This budget is usually a twelve-month
budget that rolls forward one month
as the current month is completed.
This budget is usually a twelve-month
budget that rolls forward one month
as the current month is completed.
L o n g R a n g e B u d g e t s
Capital budgets (ith ac*uthat normally cover sever
%inancial budgets (resource ac*u
-
8/17/2019 Master Budget and Responisbiltiy.ppt
22/68
?/@@
Budge
Sta
Cash BudgetCash Budget
Sales of Services or GoodsSales of Services or Goods
EndingInventoryBudget
or! in "rocess
and #inishedGoods
EndingInventoryBudget
or! in "rocess
and #inishedGoods
"roductionBudget
"roductionBudget
$irect%aterialsBudget
$irect%aterialsBudget
&&$irectLa'or
Budget
$irectLa'or
Budget
(verhead
Budget
(verhead
Budget
EndingInventoryBudget
$irect %aterials
EndingInventoryBudget
$irect %aterials
Budgeted Balance
SheetBudgeted Statement of Cash
#lo)s
-
8/17/2019 Master Budget and Responisbiltiy.ppt
23/68
4top and Apply
'dentify the order in (hich the follo(ing bud
prepared"
-
8/17/2019 Master Budget and Responisbiltiy.ppt
24/68
4ales Budget
The sales budget is the most important elemmaster budget as all other budget assumptionsthe sales forecasts in the budget&
The foundation and starting point for the mast
Determines the anticipated unit and Birr ,dolla
the budgeted income statement& 9ay also include a schedule of e!pected cash
(hich determines the amount of e!peccollections from customers for each period bae!pected collections pattern&
-
8/17/2019 Master Budget and Responisbiltiy.ppt
25/68
4ales budget cont+d0
The sales budget is the only budget based on aof customer demand&
The sales budget (ill depend on the forecasting of a number of factors including"
-
8/17/2019 Master Budget and Responisbiltiy.ppt
26/68
4ales Budget cont+d0&
4ales managers use this information to plan sa
mar2eting/related activities and to determine thuman physical and technical resource needs
Accountants use the information to determinecash receipts for the cash budget
'n general companies can made sales forecast
4ales 4ta3 9ar2et Researche Trend Analysis Delphi Techni*ues 5conometric Analysis
-
8/17/2019 Master Budget and Responisbiltiy.ppt
27/68
C o C o
P a s t p a t t e r n s
P a s t p a t t e r n s
o f s a l e s
o f s a l e s
" s t i m a t e s m a d e
" s t i m
a t e s m a d e
B # s a l e s f o r c e
B # s a l e s f o r c e
$ e n e
r a l
$ e n e
r a l
e c o n
o m i c
e c o n
o m i c
c o n d
i t i o n s
c o n d
i t i o n s
Factors to Consider %hen Forecasting Factors to Consider %hen Forecasting
C h a n
C h a n & r m & r m
C h a n g e s i n
C h a n g e s i n
p r o d u c t m i '
p r o d u c t m i '
M a r ( e t
M a r ( e t
r e s e a r c h
r e s e a r c h
s t u d i e s
s t u d i e s
) d v e
r t i s i n
g
) d v e
r t i s i n
g
a n d s a l e s
a n d s a l e s
p
r o m o t i o n
p l a n
s
p r o m
o t i o n
p l a n
s
-
8/17/2019 Master Budget and Responisbiltiy.ppt
28/68
5!ample on 4ales Budget
Company A is e!pecting to sell
-
8/17/2019 Master Budget and Responisbiltiy.ppt
29/68
Re*uiredA& $repare a sales budget&
B& $repare a schedule of e!pectecollections from sales by monthtotal for the third *uarter&
C& Assume that the company (ill prbudgeted balance sheet as of 4e=& Determine the accounts receivathat date&
-
8/17/2019 Master Budget and Responisbiltiy.ppt
30/68
$roduction Budget
The production budget is prepared after
budget& The production budget lists the number of
must be produced during each budget periosales needs and to provide for the desirinventory&
$roduction needs can be determined as follo(
-
8/17/2019 Master Budget and Responisbiltiy.ppt
31/68
$roduction Budget
$roduction re*uirements for a peinFuenced by the desired level ofinventory&
'nventories should be carefully planned&
5!cessive inventories tie up funds anstorage problems& 'nsu1cient inventolead to lost sales or crash production e3ofollo(ing period&
-
8/17/2019 Master Budget and Responisbiltiy.ppt
32/68
5!amples of $roduction Bud
ABC Corporation has just made its sales
and its mar2eting department estimatescompany (ill sell @=== units during thyear& 'n the past management has minventories of #nished goods at appro!immonth+s sale& The inventory at the sta
budget period is
-
8/17/2019 Master Budget and Responisbiltiy.ppt
33/68
)dditional "'ercise on ProductionBudget
Additional 'llustration on $roduction Bu
http://example%202.doc/http://example%202.doc/
-
8/17/2019 Master Budget and Responisbiltiy.ppt
34/68
Direct 9aterials Budget"
Determines the *uantity of direct ra(
that must be purchased each period anticipated production needs ,from the pbudget- and to provide for ade*uate direct ra( materials inventories&
Remember that ra( materials inventory include indirect materials& This budget aonly the direct materials portion of ra( inventory& The indirect materials paddressed as part of the overhead budget
-
8/17/2019 Master Budget and Responisbiltiy.ppt
35/68
Direct 9aterials Budget"
The #rst step in the direct materials bud
convert units of #nished goods produdirect materials needed to produce tmultiplying the number of units producedirect materials re*uired to produce on#nished goods&
The #nal step in the direct materials bdetermine the cost of the direct purchased by multiplying the *uantitpurchased by the purchase price per unit
-
8/17/2019 Master Budget and Responisbiltiy.ppt
36/68
*+R"C, M),"R+)- B*$",
*irect Material Purchase Budget Formula
http://direct%20material%20purcahse%20budget%20formula.doc/http://direct%20material%20purcahse%20budget%20formula.doc/
-
8/17/2019 Master Budget and Responisbiltiy.ppt
37/68
5!ample on D9 Budget
Te!as $roducts has developed a very
electronic calculator& 5ach calculator re*uismall chips that cost Br @&== each and are from an overseas supplier& Te!as $rodprepared a production budget for the calc*uarters for ear @ and for the #rst *uarter
as follo(s" Year 2
Q1 Q2 Q3 Q
Budgeted Pdn in Calculator ==== ?====
-
8/17/2019 Master Budget and Responisbiltiy.ppt
38/68
5!ample on D9 Budget cont
The inventory of the chips at the end of
must be e*ual to @=I of the follo(ing productions needs& There (ill be === hand to start the #rst *uarter of ear @&
Re*uired"
$repare direct materials budget for the *uarter and in total for ear @ including tamount of purchases for each *uarter anyear in total&
-
8/17/2019 Master Budget and Responisbiltiy.ppt
39/68
Direct Labor Budget
Determines the direct labor hours and di
dollars re*uired each period to meet anproduction needs ,from the production bu
The indirect labor costs are addressed athe overhead budget&
Direct labor budget may be a3ected by costs inelastic supply of labor a minimumof hours to be (or2ed and otherre*uirements&
-
8/17/2019 Master Budget and Responisbiltiy.ppt
40/68
-
8/17/2019 Master Budget and Responisbiltiy.ppt
41/68
5!amples on Direct Labor bu
*irect -abor Budget.doc
http://direct%20labor%20budget.doc/http://direct%20labor%20budget.doc/
-
8/17/2019 Master Budget and Responisbiltiy.ppt
42/68
9anufacturing Overhead Bu
The manufacturing overhead budget
components K variable and #!ed overhea Budgeted variable overhead e!penses d
the number of units produced fproduction budget and a budgeted overhead cost per unit&
Budgeted #!ed overhead e!penses depthe total cost e!pected to be incurred type of #!ed overhead cost&
-
8/17/2019 Master Budget and Responisbiltiy.ppt
43/68
9anufacturing Overhead Bu
Any noncash #!ed manufacturing overhe
such as depreciation e!pense is deducthe total manufacturing overhead to dthe cash disbursements for manuoverhead&
The cash (as spent (hen the deprecia(as ac*uired and not (hen the depreciated&-
-
8/17/2019 Master Budget and Responisbiltiy.ppt
44/68
5!ample on 9anufacturing Overhead B
Company C+s variable manufacturing
rate is Br @&== per direct labor/hour company+s #!ed manufacturing overhe=@;= per *uarter& The only non/cashincluded in the #!ed overhead is depreBr
-
8/17/2019 Master Budget and Responisbiltiy.ppt
45/68
5!ample on 9anufacturing Overhead B
Re*uired"
A& Construct company+s manufacturing budget for the year&
B& Compute the company+s manufacturing rates ,variable #!ed and total- for the ye
-
8/17/2019 Master Budget and Responisbiltiy.ppt
46/68
4elling and Administrative 5!pense Bu
4elling and Administrative ,4JA- e!pense
similar to the manufacturing overhead budincludes variable and #!ed e!penses&
Budgeted variable 4JA e!penses depend on thof units sold or sales dollars from the sales bud
Budgeted #!ed 4JA e!penses depend on the
e!pected to be incurred for each type of #!ed 4 Any noncash #!ed 4JA costs such as de
e!pense is deducted from the total 4JA e!determine the cash disbursements for 4JA e!pe
-
8/17/2019 Master Budget and Responisbiltiy.ppt
47/68
Cash Budget
Little is more important to business suc
e3ective cash management& 'f a company e!periences cash shortages
unable to pay its debts and may be foban2ruptcy&
'f e!cess cash accumulates a business
opportunity to earn investment income interest costs by repaying debt&
$reparing a cash budget alerts managanticipated cash shortages or e!cess cash b
-
8/17/2019 Master Budget and Responisbiltiy.ppt
48/68
Cash Budget
The cash budget estimates the e!pected receipts ,inF
payments ,outFo(s- of cash for a period of time& 't summari)es the cash Fo( prospects of all transactio
considered in the master budget&
The information that the cash budget provides enableto plan for short/term loans (hen the cash balance is short term investments (hen the cash balance is high
A cash budget e!cludes planned noncash transactiodepreciation e!pense amorti)ation e!pense issuanceof stoc2 dividends uncollectible accounts e!pense anlosses on sales of assets&
-
8/17/2019 Master Budget and Responisbiltiy.ppt
49/68
Cash Budget
The cash budget is composed of four majsections"
-
8/17/2019 Master Budget and Responisbiltiy.ppt
50/68
Cash Budget
The cash budget uses information from other budgets"
Cash receipts from the sales budgetCash disbursement s from direct
budget cash disbursements from tlabor manufacturing overhead andadministrative e!pense budget&
-
8/17/2019 Master Budget and Responisbiltiy.ppt
51/68
Cash Budget
The company may also have to meet a
balance re*uirement for its cash accounimposed by the ban2&
'f the cash balance falls short of the re*uired the company (ill have to borroto increase the cash balance to the minim
'f the company has cash in e!cess of the balance re*uired it is obligated to payoutstanding borro(ings and the relatedpayable&
-
8/17/2019 Master Budget and Responisbiltiy.ppt
52/68
Cash Budget
After the borro(ings and interest have been
the company may leave the e!cessM cash inaccount&
The receipts section lists all of the case!cept from #nancing e!pected during thperiod& Nenerally the major source of receip
sales& The disbursements section summari)es
payments that are planned for the budgThese payments include D9 purchases dipayments 9OH costs and so on
-
8/17/2019 Master Budget and Responisbiltiy.ppt
53/68
Cash Budget
The cash e!cess or de#ciency section is c
as follo(s"
'f a cash de#ciency e!ists during anperiod the company (ill need to borro(there is a cash e!cess during any budgefunds borro(ed in previous periods can
or the e!cess funds can be invested
Cash Balance Beginning
Add Receipts
Total Cash Available
Less Disbursement
5!cess ,de#ciency- of cash Available over Disbursement
-
8/17/2019 Master Budget and Responisbiltiy.ppt
54/68
"'ample on Cash Budget
"'ample on Cash Budget.doc
http://example%20on%20cash%20budget.doc/http://example%20on%20cash%20budget.doc/
-
8/17/2019 Master Budget and Responisbiltiy.ppt
55/68
Budgeted 'ncome 4tatement
A budgeted income statement can be
from the data developed in the operating budget&
The budgeted income statement is one oschedules in the budget process&
't sho(s the company+s planned pro#t anas a benchmar2 against (hich sucompany performance can be measured&
-
8/17/2019 Master Budget and Responisbiltiy.ppt
56/68
-
8/17/2019 Master Budget and Responisbiltiy.ppt
57/68
Budgeted Balance 4heet
4tatements of #nancial position comestimate of #nancial position at the begthe budget period (ith the estimated roperations for the period ,from thestatements- and estimated changes in aliabilities&
-
8/17/2019 Master Budget and Responisbiltiy.ppt
58/68
Budgeting and Responsibility Acco
To attain the goals described in the maste
a company must coordinate the e3orts employees from the top e!ecutive throughof management to every supervised (or2e
Coordinating the company+s e3ortsassigning responsibility to managers
accountable for their actions in plancontrolling human and other resources&
Ho( each company structures its o(n orgsigni#cantly shapes ho( the company+s e
be coordinated.
-
8/17/2019 Master Budget and Responisbiltiy.ppt
59/68
Responsibility Accounting
Organi)ation structure is an arrangemen
of responsibility (ithin the organi)ation& 5ach manager regardless of level is in
a responsibility center&
A responsibility center is a part seg
subunit of an organi)ation (hose maaccountable for a speci#ed set of activiti The higher the manager+s level the bro
responsibility center and the larger the nhis or her subordinates&
-
8/17/2019 Master Budget and Responisbiltiy.ppt
60/68
Responsibility Accounting J Cente
Responsibility accounting is a syst
measures the plans budgets actions aresults of each responsibility center&
%our types of responsibility centersfollo(s"
-
8/17/2019 Master Budget and Responisbiltiy.ppt
61/68
Controllability Concept
The controllability concept is crucia
e3ective responsibility accounting system 9anagers should only be evaluated b
revenues or costs they control&
Holding individuals responsible for thicannot control is de/motivating&
'solating control ho(ever may be di1illustrated in the follo(ing case&
-
8/17/2019 Master Budget and Responisbiltiy.ppt
62/68
Controllability
Controllability can be di1cult to determinbecause most items can be a3ected or inFthe actions of more than one manager anthe controllability of items depends to e!tent on the period being measured si
items are controllable in the long run& Responsibility accounting should focus #rst
to as2 for information and not on (hom to b
-
8/17/2019 Master Budget and Responisbiltiy.ppt
63/68
5/Budgeting5/Budgeting
5mployees throughout an organi)ation can and retrieve budget information electronica
This tends to streamline the entire budgetinprocess&
5mployees throughout an organi)ation can sand retrieve budget information electronica
This tends to streamline the entire budgetinprocess&
?/
h i l f d
-
8/17/2019 Master Budget and Responisbiltiy.ppt
64/68
Behavioral 'mpact of BudgetBehavioral 'mpact of Budget
The budgeting process may be abused bothsuperiors and subordinates leading to outcomes
Budgetary 4lac2 or $adding the Budget
$eople often perceive that their performance
better in their superiors+ eyes if they can budget&M
Budgetary 4lac2
The practice of underestimating budgeted roverestimating budgeted e!penses in an e3ort
resulting budgeted goals ,pro#ts- more easily att
?/
h i l f d
-
8/17/2019 Master Budget and Responisbiltiy.ppt
65/68
Behavioral 'mpact of BudgetBehavioral 'mpact of Budget
4pending the budget is anothemanagers often feel if they do all the resources they receiveyear+s budget may be cut&
i i i d iP i i i B d i
-
8/17/2019 Master Budget and Responisbiltiy.ppt
66/68
Participative BudgetingParticipative Budgeting?/
#lo) of Budget $ata#lo) of Budget $ata
S u p e r v i s o r S u p e r v i s o r
M i d d l eM a n a g e m e n t
S u p e r v i s o r S u p
M i d d l eM a n a g e m e
T o p M a n a g e m e n t
C ll bili
-
8/17/2019 Master Budget and Responisbiltiy.ppt
67/68
Controllability
Controllability refers to the deinFuence that a manager has orevenues costs and other
items for (hich the manaresponsible&
,h " d,h " d
-
8/17/2019 Master Budget and Responisbiltiy.ppt
68/68
,he "nd ,he "nd