Budgeting Chapter 21 WE NEED A GAME PLAN

Your Personal Budget Estimated Portion of Your Total Monthly Income That Should Be Budgeted for Various Living Expenses

Nature and Objectives of Budgeting Budgets play an important role for organizations of all sizes and forms. For example, budgets are used in managing the operations of government agencies, churches, hospitals, small businesses, and manufacturing companies.

The North Face used budgeting to plan the manufacturing costs associated with its outdoor clothing and equipment production to determine: # of coats to be produced # of people to be employed amount of material to be purchased. They also budget for advertising and marketing among other things in accordance with their 10 year plan.

Budgeting involves: 1.Establishing specific goals. 2.Executing plans to achieve the goals. 3.Periodically comparing actual results with the goals.

Human Behavior and Budgeting Impossible to achieve Too easy to achieve Company v employees

Used in Administrative, selling and overhead departments: Description:A budget that does not reflect potential changes in volume or activity level Strength:Simple—all expenses are budgeted as fixed costs Weakness:Does not reflect changes in revenues and expenses that must occur as volumes change, making it difficult to interpret actual performance Typical Usage:Service organizations or administrative departments of retailers and manufacturers Types of Budgets: STATIC BUDGET

Used in Production department. Description:A budget that shows revenues and expenses for a variety of volumes or activity levels Strength:Provides information needed to analyze the impact of volume changes on actual operating results Weakness:Requires greater research into costs—must differentiate fixed and variable costs in the budgeting process Typical Usage:Operational departments of retailers and manufacturers whose costs change with sales and production Types of Budgets: FLEXIBLE BUDGET

Master Budget Integrated with operating-investing- financing activities Prepared on a yearly basis Budgeted Income Statement and a Budgeted Balance Sheet

Budgeted Income Statement

Budgeted Balance Sheet Financing activities and investing activities CASH BUDGET CAPITAL EXPENDITURE BUDGET BUDGETED BALANCE SHEET

ASSIGNMENTS FOR CHAPTER PE 21-A & PE 21-B: page Exercise 21-2: page Exercise 21-3: page Exercise 21-4: page CP 21-4: page 1022 Internet Activity State Budgets