managerial accounting chapter 9...what’s the difference? operating budgets are the individual...
TRANSCRIPT
![Page 1: Managerial Accounting Chapter 9...What’s the difference? Operating budgets are the individual budgets that result in preparation of budgeted income statement and establishes goals](https://reader030.vdocuments.us/reader030/viewer/2022040912/5e86f804c357a66924742dad/html5/thumbnails/1.jpg)
Managerial Accounting – Chapter 9
![Page 2: Managerial Accounting Chapter 9...What’s the difference? Operating budgets are the individual budgets that result in preparation of budgeted income statement and establishes goals](https://reader030.vdocuments.us/reader030/viewer/2022040912/5e86f804c357a66924742dad/html5/thumbnails/2.jpg)
What is a Budget? A formal written statement of management’s
plans for a specified future time period,
expressed in financial terms
In other words, it’s what we think will happen in
the company, money-wise
![Page 3: Managerial Accounting Chapter 9...What’s the difference? Operating budgets are the individual budgets that result in preparation of budgeted income statement and establishes goals](https://reader030.vdocuments.us/reader030/viewer/2022040912/5e86f804c357a66924742dad/html5/thumbnails/3.jpg)
Why Budget? Requires all management to plan ahead
Provides definite objectives for performance evaluation
Creates early warning system for potential problems
Facilitates coordination of activities within the business
Greater management awareness of overall operations
Motivates personnel to meet planned objectives
![Page 4: Managerial Accounting Chapter 9...What’s the difference? Operating budgets are the individual budgets that result in preparation of budgeted income statement and establishes goals](https://reader030.vdocuments.us/reader030/viewer/2022040912/5e86f804c357a66924742dad/html5/thumbnails/4.jpg)
A budget is an aid to management.
A budget is not a substitute for management!
![Page 5: Managerial Accounting Chapter 9...What’s the difference? Operating budgets are the individual budgets that result in preparation of budgeted income statement and establishes goals](https://reader030.vdocuments.us/reader030/viewer/2022040912/5e86f804c357a66924742dad/html5/thumbnails/5.jpg)
It should go without saying… A budget should be realistic
It should be accepted by management
The people responsible for the budget should have authority to make the budget
The people responsible for implementing budgeted actions should have authority to implement the actions
![Page 6: Managerial Accounting Chapter 9...What’s the difference? Operating budgets are the individual budgets that result in preparation of budgeted income statement and establishes goals](https://reader030.vdocuments.us/reader030/viewer/2022040912/5e86f804c357a66924742dad/html5/thumbnails/6.jpg)
Budget Time Length Can be for any time – most common is one year
Sometimes supplement with monthly or quarterly budgets (some businesses have cyclical products like winter coats)
Short enough to be reliable, long enough to be attainable
![Page 7: Managerial Accounting Chapter 9...What’s the difference? Operating budgets are the individual budgets that result in preparation of budgeted income statement and establishes goals](https://reader030.vdocuments.us/reader030/viewer/2022040912/5e86f804c357a66924742dad/html5/thumbnails/7.jpg)
Where do we get budget figures? Past performance data
Collect info from all units
Usually started months before current cycle ends
Industry-wide expectations (sales forecast)
Shows potential industry sales
Shows company’s expected share of industry sales
![Page 8: Managerial Accounting Chapter 9...What’s the difference? Operating budgets are the individual budgets that result in preparation of budgeted income statement and establishes goals](https://reader030.vdocuments.us/reader030/viewer/2022040912/5e86f804c357a66924742dad/html5/thumbnails/8.jpg)
What do we have to think about?
General economic conditions
Industry trends
Market research studies
Anticipated advertising and promotion
Previous market share
Price changes
Technological developments
![Page 9: Managerial Accounting Chapter 9...What’s the difference? Operating budgets are the individual budgets that result in preparation of budgeted income statement and establishes goals](https://reader030.vdocuments.us/reader030/viewer/2022040912/5e86f804c357a66924742dad/html5/thumbnails/9.jpg)
Involve all levels of management
Called Participative Budgeting
More accurate – lower level managers have more detailed knowledge of their area
Tend to see process as fair due to involvement
Goal is to produce budget that’s considered fair and achievable by managers; and still meet corporate goals
![Page 10: Managerial Accounting Chapter 9...What’s the difference? Operating budgets are the individual budgets that result in preparation of budgeted income statement and establishes goals](https://reader030.vdocuments.us/reader030/viewer/2022040912/5e86f804c357a66924742dad/html5/thumbnails/10.jpg)
Participative Budgeting Disadvantages
Time consuming
Costly (time = $$)
Can foster “gaming the system” by building in budgetary slack
Unrealistic budgets can lead to unethical behavior like cutting corners on jobs or distorting internal financial reports
![Page 11: Managerial Accounting Chapter 9...What’s the difference? Operating budgets are the individual budgets that result in preparation of budgeted income statement and establishes goals](https://reader030.vdocuments.us/reader030/viewer/2022040912/5e86f804c357a66924742dad/html5/thumbnails/11.jpg)
There’s a difference between budgeting and long range planning
Budgeting is short term, usually 1 year
Very detailed
Long range planning is at least 5 years
Not as detailed
![Page 12: Managerial Accounting Chapter 9...What’s the difference? Operating budgets are the individual budgets that result in preparation of budgeted income statement and establishes goals](https://reader030.vdocuments.us/reader030/viewer/2022040912/5e86f804c357a66924742dad/html5/thumbnails/12.jpg)
Master Budget Complete plan of action for the time period
Contains two interrelated types of budgets: Operating budgets and Financial budgets
![Page 13: Managerial Accounting Chapter 9...What’s the difference? Operating budgets are the individual budgets that result in preparation of budgeted income statement and establishes goals](https://reader030.vdocuments.us/reader030/viewer/2022040912/5e86f804c357a66924742dad/html5/thumbnails/13.jpg)
What’s the difference? Operating budgets are the individual budgets that
result in preparation of budgeted income statement and establishes goals for sales and production personnel
Financial budgets are the capital expenditures budget; cash budget; budgeted balance sheet
Focus is primarily on cash needs to fund operations and capital expenditures
![Page 14: Managerial Accounting Chapter 9...What’s the difference? Operating budgets are the individual budgets that result in preparation of budgeted income statement and establishes goals](https://reader030.vdocuments.us/reader030/viewer/2022040912/5e86f804c357a66924742dad/html5/thumbnails/14.jpg)
What order do we go in?
Sales budget is first
Comes from the sales forecast (management’s best estimate of sales revenue for the budget period)
All other budgets depend on sales budget
Multiply expected unit sales volume for each product times anticipated selling price
![Page 15: Managerial Accounting Chapter 9...What’s the difference? Operating budgets are the individual budgets that result in preparation of budgeted income statement and establishes goals](https://reader030.vdocuments.us/reader030/viewer/2022040912/5e86f804c357a66924742dad/html5/thumbnails/15.jpg)
Next: Production budget Shows units that must be produced to meet
anticipated sales
Derived from sales budget plus desired change in ending finished goods inventory
![Page 16: Managerial Accounting Chapter 9...What’s the difference? Operating budgets are the individual budgets that result in preparation of budgeted income statement and establishes goals](https://reader030.vdocuments.us/reader030/viewer/2022040912/5e86f804c357a66924742dad/html5/thumbnails/16.jpg)
Direct Materials Budget Shows quantity AND cost of direct materials to be
purchased
Multiply required direct materials units to be purchased by anticipated cost per unit to get budgeted cost of direct materials to be purchased
Mess it up and you run out of inventory and production shuts down.
No cupcakes for you!
![Page 17: Managerial Accounting Chapter 9...What’s the difference? Operating budgets are the individual budgets that result in preparation of budgeted income statement and establishes goals](https://reader030.vdocuments.us/reader030/viewer/2022040912/5e86f804c357a66924742dad/html5/thumbnails/17.jpg)
Direct Labor Budget Shows quantity of hours, cost of direct labor needed to
meet production requirements
Critical in maintaining a labor force that can meet expected production
![Page 18: Managerial Accounting Chapter 9...What’s the difference? Operating budgets are the individual budgets that result in preparation of budgeted income statement and establishes goals](https://reader030.vdocuments.us/reader030/viewer/2022040912/5e86f804c357a66924742dad/html5/thumbnails/18.jpg)
Manufacturing Overhead Budget Shows manufacturing overhead costs for budget
period
Distinguishes between fixed and variable over head costs
![Page 19: Managerial Accounting Chapter 9...What’s the difference? Operating budgets are the individual budgets that result in preparation of budgeted income statement and establishes goals](https://reader030.vdocuments.us/reader030/viewer/2022040912/5e86f804c357a66924742dad/html5/thumbnails/19.jpg)
Selling and Administrative Expense Budget
Projection of anticipated operating expenses
Distinguish between fixed and variable costs
![Page 20: Managerial Accounting Chapter 9...What’s the difference? Operating budgets are the individual budgets that result in preparation of budgeted income statement and establishes goals](https://reader030.vdocuments.us/reader030/viewer/2022040912/5e86f804c357a66924742dad/html5/thumbnails/20.jpg)
Budgeted Income Statement (Finally, a financial statement!)
Important end result of operating budget
Indicates expected profitability of operations
Provides a basis for evaluating company performance
Prepared from the operating budgets: Sales; Direct Materials; Direct Labor; Manufacturing Overhead; Selling and Administrative Expense
![Page 21: Managerial Accounting Chapter 9...What’s the difference? Operating budgets are the individual budgets that result in preparation of budgeted income statement and establishes goals](https://reader030.vdocuments.us/reader030/viewer/2022040912/5e86f804c357a66924742dad/html5/thumbnails/21.jpg)
Cash Budget (like a projected Statement of Cash Flows)
Shows anticipated cash flows
Often considered the most important output in preparing financial budgets
Three sections: Cash receipts; Cash disbursements; Financing
Also shows beginning and ending cash balances
![Page 22: Managerial Accounting Chapter 9...What’s the difference? Operating budgets are the individual budgets that result in preparation of budgeted income statement and establishes goals](https://reader030.vdocuments.us/reader030/viewer/2022040912/5e86f804c357a66924742dad/html5/thumbnails/22.jpg)
![Page 23: Managerial Accounting Chapter 9...What’s the difference? Operating budgets are the individual budgets that result in preparation of budgeted income statement and establishes goals](https://reader030.vdocuments.us/reader030/viewer/2022040912/5e86f804c357a66924742dad/html5/thumbnails/23.jpg)
Cash Receipts Section
Includes expected receipts from the principle sources of revenue
Expected interest and dividends receipts; proceeds from planned sales of investments, plant assets, company’s capital stock
![Page 24: Managerial Accounting Chapter 9...What’s the difference? Operating budgets are the individual budgets that result in preparation of budgeted income statement and establishes goals](https://reader030.vdocuments.us/reader030/viewer/2022040912/5e86f804c357a66924742dad/html5/thumbnails/24.jpg)
Cash Disbursements Section Expected cash payments for direct materials, direct
labor, manufacturing overhead, and selling and administrative expenses
![Page 25: Managerial Accounting Chapter 9...What’s the difference? Operating budgets are the individual budgets that result in preparation of budgeted income statement and establishes goals](https://reader030.vdocuments.us/reader030/viewer/2022040912/5e86f804c357a66924742dad/html5/thumbnails/25.jpg)
Financing Section Expected borrowings and repayments of borrowed
funds, plus interest
![Page 26: Managerial Accounting Chapter 9...What’s the difference? Operating budgets are the individual budgets that result in preparation of budgeted income statement and establishes goals](https://reader030.vdocuments.us/reader030/viewer/2022040912/5e86f804c357a66924742dad/html5/thumbnails/26.jpg)
Cash Budget Has to be prepared in order
Ending cash balance in one period is the beginning cash balance in the next
Data is obtained from other budgets and from management
Often prepared for one year (individual months shown)
![Page 27: Managerial Accounting Chapter 9...What’s the difference? Operating budgets are the individual budgets that result in preparation of budgeted income statement and establishes goals](https://reader030.vdocuments.us/reader030/viewer/2022040912/5e86f804c357a66924742dad/html5/thumbnails/27.jpg)
Why prepare a cash budget? Contributes to more effective cash management
Shows managers the need for additional financing before the actual need arises (we can plan ahead)
Indicates when excess cash will be available
![Page 28: Managerial Accounting Chapter 9...What’s the difference? Operating budgets are the individual budgets that result in preparation of budgeted income statement and establishes goals](https://reader030.vdocuments.us/reader030/viewer/2022040912/5e86f804c357a66924742dad/html5/thumbnails/28.jpg)
Budgeted Balance Sheet Developed from budgeted balance sheet for the prior
year and the budgets for the current year
Let’s look at an example…
![Page 29: Managerial Accounting Chapter 9...What’s the difference? Operating budgets are the individual budgets that result in preparation of budgeted income statement and establishes goals](https://reader030.vdocuments.us/reader030/viewer/2022040912/5e86f804c357a66924742dad/html5/thumbnails/29.jpg)