Presentation is loading. Please wait.

Presentation is loading. Please wait.

Foundations and Evolutions

Similar presentations

Presentation on theme: "Foundations and Evolutions"— Presentation transcript:

1 Foundations and Evolutions
Cost Accounting Foundations and Evolutions Kinney and Raiborn Seventh Edition Chapter 8 The Master Budget COPYRIGHT © 2009 South-Western, a part of Cengage Learning. South-Western is a trademark used herein under license.

2 Learning Objectives (1 of 2)
Describe how strategic planning is related to budgeting Identify the starting point of a master budget and explain why it is the starting point Identify and prepare the various master budget schedules Explain why the cash budget is important in the master budgeting process

3 Learning Objectives (2 of 2)
Prepare and understand budgeted financial statements prepared at the end of the budgeting process List the benefits provided by a budget (Appendix) Explain how a budget manual facilitates the budgeting process

4 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

5 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

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

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

8 The Master Budget A comprehensive set of budgets, budgetary schedules, and pro forma organizational financial statements For a specific period of time Static – based on a single level of output demand Interactive – departments generate and consume information

9 The Master Budget Operating Budgets Financial Budgets 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

10 Selling and Admin Budget
The Operating Budget Sales Budget Selling and Admin Budget Production Budget Purchases Budget Overhead Budget Direct Labor Budget

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

12 Production Budget Production manager combines Sales estimates
Beginning inventory targets Ending inventory targets Determines the types, quantities, and timing of products to be manufactured

13 Direct Labor Budget Total number of people Specific types of workers
Production hours needed Costs Union contracts Minimum wage laws Fringe benefit costs Payroll taxes

14 Overhead Budget Identify activity base Estimate overhead costs
Separate costs as fixed or variable Show total costs for operating budgets Show costs without depreciation for cash budgets

15 Cash Budget Highlights importance of cash for organization’s continued existence Translates accrual-based information into cash flows Indicates effectiveness of credit practices Allows for planned cash borrowing or investing Used to prepare pro forma Cash Flow Statement

16 Capital Budget Long-term fixed asset needs Plant Equipment
Payment points

17 The Financial Budget Statement of Cash Flows Cash Budget
Capital Budget Income Statement/COGMfg Operating Budget Statement of Retained Earnings Balance Sheet

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

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

20 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?

21 Potential Ethical Issues
Using a single budget system globally that may conflict with national cultures Permitting budget slack Distorting budgeting process by treating short-term conditions as long-term conditions Using fraudulent accounting techniques to meet budget goals

22 Potential Ethical Issues
Ignoring employee input in budgeting Justifying management decisions by using “backwards budgeting” Disregarding contingencies in budgeting Ignoring external performance measures and benchmarks

23 Potential Ethical Issues
Failure to communicate “big picture” assumptions to all managers participating in the budget process Promoting “spend-it-or-lose-it” attitudes to punish cost savings and reward spending Mandating “across-the-board” budget cuts without considering alternative cost reductions

Download ppt "Foundations and Evolutions"

Similar presentations

Ads by Google