Matakuliah : COST ACCOUNTING Tahun : 2009 Chapter 15, 16 BUDGETING: PROFITS, SALES, COSTS, & EXPENSES, AND CASH BUDGET Learning 25, 26

Profit Planning (Budgeting) Profit planning is the development of an operational plan to achieve a company’s goals and objectives. A budget is simply a plan expressed in financial and other quantitative terms. A company’s profit plan consists of a detailed operating budget and budgeted financial statements. Bina Nusantara University

Profit Planning Budgets are distinct from forecasts. A budget represents the expected profit level of target that management strives to achieve. A forecast is what the organization predicts will occur. Bina Nusantara University

Long-Range Profit Planning As the continuous process of making present decisions systematically and, with the best possible knowledge of their futurity, organizing systematically the efforts needed to carry out these decisions, and measuring the results of these decisions against expectations through organized, systematic feedback. Bina Nusantara University

Short-Range Budgets Long range plans must be incorporated into a shorter range budget for planning and controlling the contemplated course of action. Short range budgets can cover periods of 3, 6, or 12 months, depending on the nature of the business. Bina Nusantara University

Advantages of Profit Planning Profit planning provides a disciplined approach to problem identification and problem solving. Profit planning provides direction to all levels of management. Profit planning enhances coordination. Profit planning provides a way to enlist ideas and cooperation of all levels of management. The budget provides a yardstick for evaluating actual performance and gauging. Bina Nusantara University

Limitations of Profit Planning Forecasting is not an exact science; a certain amount of judgment is present in any estimate. Because a budget must be based on forecasts of future events, a revision or modification of the budget should be made when variations from estimates warrant a change of plans. The budget can focus a manager’s attention on goals that are not necessarily in harmony with the organization’s overall objectives. Profit planning must be the commitment of top management and the cooperation of all members of management. Bina Nusantara University

Limitations of Profit Planning Excessive use of the budget as an evaluation tool can result in dysfunctional behavior. Profit planning does not eliminate or replace the role administration. Installation takes time. Bina Nusantara University

Principles of Budgeting The budgeting process usually is directed by a budget committee composed of the sales manager, the production manager, the chief engineer, the treasures and the controller. Bina Nusantara University

Principles of Budgeting The principal function of the budget committee are to: Decide on general policies. Request and review individual budget estimates. Suggest revisions in individual budget estimates. Aprrove budgets and later revisions. Analyze budgets reports. Recommend actions to improve efficiency Bina Nusantara University

The Complete Periodic Budget A complete set of budgets generally consits of the following elements: A sales budget. Estimates of inventory and production requirements. Budgets of materials, labor, and factory overhead, combined into a cost of goods manufactured and sold schedule. Budgets for marketing and administrative expenses Estimates of other income and expense items and income tax. Bina Nusantara University

A budgeted income statement. A budget of capital expenditures and or research and development expenditures. A cash receipts and disbursements budget. A budgeted balance sheet showing the estimated financial position of the company at the end of the budget period. Bina Nusantara University

Cash Budget A cash budget involves detailed estimates of anticipated cash receipts and disbursements for the budget period. Bina Nusantara University

Cash Budget A cash budget does the following: Indicates cash requirements needed for current operating activities. Aids in focusing on cash usage priorities that are currently required and unavoidable versus those that are postponable or permanently avoidable. Indicates the cash effects of seasonal requirements, large inventories, unusual receipts, and showness in collecting receivables. Bina Nusantara University

Indicates the availability of cash for taking advantage of discounts. Indicates the cash requirements for a plant or equipment expansion program. Assists in planning for bond retirements, income tax payments, and contributions to pension plan. Bina Nusantara University

Shows the need for borrowings or sales of securities. Shows availability of excess funds for short term or long term investments. Shows the need for borrowings or sales of securities. Serves as a basis for evaluating actual cash management. Bina Nusantara University