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Chapter 13 The Master Budget Cost Accounting Traditions and Innovations Barfield, Raiborn, Kinney.

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Presentation on theme: "Chapter 13 The Master Budget Cost Accounting Traditions and Innovations Barfield, Raiborn, Kinney."— Presentation transcript:

1 Chapter 13 The Master Budget Cost Accounting Traditions and Innovations Barfield, Raiborn, Kinney

2 Learning Objectives (1 of 2) Explain why budgeting is important Describe how strategic and tactical planning are related to budgeting Identify the starting point of a master budget Prepare various master budget schedules

3 Learning Objectives (2 of 2) Explain how the master budget schedules relate to one another Clarify why the cash budget is important in the master budgeting process (Appendix) Explain how a budget manual facilitates the budgeting process

4 Management Planning is the cornerstone of effective management

5 Terms Budgeting - Formalizes plans and translates qualitative narratives into a documented, quantitative format Budget - Expresses a commitment to planned activities and resource acquisition and use

6 Budgets Communicate objectives, constraints, and expectations Provide financial predictions Identify potential problems Determine resource allocation and constraints Permit control through budget-to-actual comparisons

7 The Planning Process Strategic Planning Tactical Planning Budget

8 Strategic Planning Long-term (5 to 10 years) Top-level management Long-range goals, strategies, and policies Foundation for short-term planning Identify and gather information on key variables, both internal and external

9 External Key Variables Competitor actions U.S. market conditions U.S. political/regulatory climate Emerging technology issues Consumer trends and attitudes International market conditions Demographics International political/regulatory climate

10 Tactical Plans Short-term (1 to 18 months) Top and mid-management Specific objectives and means to achieve strategic plans Basis against which results can be measured

11 Budgeting Short-term Top, mid, and operational management Usable guidelines to implement strategic and tactical plans Allocates resources Standard against which performance can be measured

12 The Control Phase Actual-to-budget comparisons Determining and investigating variances Corrective action Feedback to operating managers Budget

13 The Balanced Scorecard Financial performance Customer satisfaction Innovation and learning Key performance indicators Measures –Short-term performance –Indicators of future success

14 The Master Budget Operating Budget Financial Budget Sales Budget Production Budget Purchases Budget Direct Labor Budget Overhead Budget Selling & Administrative Budget Cash Budget Capital Expenditures Budget Balance Sheet Income Statement Statement of Cash Flows Statement of Retained Earnings

15 The Operating Budget Sales Budget

16 Sales Forecast Ask sales personnel Extrapolate past trends Use market research Employ statistical models and simulation Sales Forecast

17 The Operating Budget Sales Budget Production Budget

18 The Operating Budget Sales Budget Production Budget Overhead Budget Direct Labor Budget Purchases Budget

19 The Operating Budget Sales Budget Production Budget Overhead Budget Direct Labor Budget Purchases Budget Admin Expense Budget Selling Expense Budget

20 The Financial Budget Operating Budget

21 The Financial Budget Operating Budget Cash Budget Capital Budget

22 The Financial Budget Operating Budget Cash Budget Capital Budget Income Statement

23 The Financial Budget Operating Budget Cash Budget Capital Budget Income Statement Statement of Retained Earnings

24 The Financial Budget Operating Budget Cash Budget Capital Budget Income Statement Statement of Retained Earnings Balance Sheet

25 The Financial Budget Operating Budget Cash Budget Capital Budget Income Statement Statement of Retained Earnings Balance Sheet Statement of Cash Flows

26 Budgets Provide Guide to align activities and resources with organizational goals Vehicle to promote employee participation, cooperation, and departmental coordination Tool to enhance planning, controlling, problem solving, and evaluating Budget

27 Budgeting Provides Basis to sharpen responsiveness to internal and external factors Model to view future performance and consider alternative measures Budget

28 Budgeting Terms Continuous budgeting –12-month rolling budget

29 Budgeting Terms Continuous budgeting Budget slack –intentional underestimation of revenue –intentional overestimation of expenses –overcome by linking actual performance to budget through a bonus system

30 Budgeting Terms Continuous budgeting Budget slack Participatory budget –developed by top management and operating personnel

31 Budgeting Terms Continuous budgeting Budget slack Participatory budget Imposed budgets –developed by top management –imposed on operating personnel

32 Activity Budget Map line items in budget to list of activities Raise awareness of non-value-added activities Question and reduce non-value-added costs Budget

33 Budget Manual Statements of budgetary purpose and its desired results Listing of specific budgetary activities to be performed Calendar of scheduled budgetary activities Sample of budgetary forms Original, revised, and approved budgets

34 Questions How are strategic and tactical planning related to budgeting? In what order are the master budget schedules prepared? Why is the cash budget important in the master budgeting process?


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