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

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. 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 Cash Budget
Sales Budget
Cash Budget
Production Budget
Capital Expenditures
Budget
Purchases Budget
Balance Sheet
Direct Labor Budget
Income Statement
Overhead Budget
Statement of Cash Flows
Selling & Administrative Budget
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 Purchases Budget
Overhead Budget
Direct Labor Budget

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

20. The Financial Budget
Operating Budget

21. The Financial Budget
Cash Budget
Capital Budget
Operating Budget

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

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

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

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

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?