7 - 1 ©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton Chapter 7 The Master Budget: Overall.

7 - 1 ©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton Chapter 7 The Master Budget: Overall plan Presented by Sahar Mahmoud Ahmed Under Supervision of Dr, Ibrahim Raslan

©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton 7 - 3 What is budget l A budget is a plan expressed in quantitative, usually monetary term, covering a specific period of time, usually one year, l A detailed plan of income and expenses expected over a certain period of time, l a formal projection of spending and income for an upcoming period of time, traditionally submitted by the President or Executive for consideration and approval,

©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton 7 - 5 Compels managers to think ahead Aids managers in coordinating their efforts Provides definite expectations that are the best framework to evaluate performance Advantages of Budgets

©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton 7 - 6 Types of Budgets Strategic Plan Long-Range Plan Capital Budget Master Budget Continuous Budget

©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton 7 - 7 Strategic Plan l The most forward-looking budget is the strategic plan, which sets the overall goals and objectives of the organization,

©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton 7 - 8 Long-Range Plan The strategic plan leads to long-range planning, which produces forecasted financial statements for five- to ten-year periods,

©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton 7 - 9 Capital Budget Long-range plans… are coordinated with capital budgets, which detail the planned expenditures for facilities, equipment, new products, and other long-term investments,

©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton 7 - 10 Master Budget… summarizes the planned activities of all subunits of an organization, Sales Production Distribution Finance

©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton 7 - 13 Operating Budget (Financial plan) Major part of master budget that focus on the income statement and its supporting schedules, Financial Budget The part of master budget that focuses on the effect that the operating budgets and other plans as capital budgets will have on cash,

©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton 7 - 15 Purchases Budget ____ Cost of Goods Sold Budget ____ Operating Expenses Budget ____ Budgeted Income Statement ____ Sales Budget ____ Inventory Budget ____ Operating Budget Components of Master Budget

©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton 7 - 16 Budgeted Balance Sheet _____ Capital Budget _____ Cash Budget _____ Components of Master Budget Financial Budget

©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton 7 - 17 Exhibit 7-1 presents a condensed diagram of the relationships among the various parts of a master budget for a non - manufacturing company, In addition to these categories manufacturing companies prepare ending inventory budgets, production budget, and additional budgets for every resource activity (such as labor, material, and factory overheads)

©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton 7 - 18 Financial Budget Operating Budget Sales Budget Purchases Budget Cost- of- Goods - Sold Budget Operating Expenses Budget Budgeted Statement Of income Budgeted Balance Sheet Cash Budget Capital Budgets Ending inventory Budget

©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton 7 - 20 Operating Budget Sales Budget Purchases Budget Operating Expenses Budget Cash collections from customers Disbursements for purchases Disbursements for operating expenses

©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton 7 - 21 Sales Budget l Operating plan for a period expressed in terms of sales volume and selling prices for each class of product or service, l Preparation of a sales budget is the starting point in budgeting since sales volume influences nearly all other items,

©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton 7 - 22 Cash Collections l It is easiest to prepare budgeted cash collections at the same time as the sales budget, l Cash collections include the current month’s cash sales plus the previous month’s credit sales,

©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton 7 - 23 Example 7-30 Suppose a Gap store has the following data l Accounts receivable, May 31 (,3 X May sales of $ 350,000) = $ 105000 l Monthly forecasted sales: June $ 410,000, July 440,000, August $ 500,000, September 530,000 Sales consist of 70% cash and 30% credit, All credit accounts are collected in the month following the sales, Uncollectible accounts are negligible and may be ignored Prepare a sales budget schedule and a cash collection budget schedule for June, July and August,

©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton 7 - 24 Solution Sales Budget June July August Credit sales (30) % 123,000 132,000 150,000 Cash Sales (70) % 287,000 308,000 350,000 Total sales (100)% 410,000 440,000 500,000 Cash Collection Cash sales this month 287,000 308,000 350,000 Credit sales 105,000 123,000 132,000 (100% of last month’s credit sales) Total Collection 392,000 431,000 482,000

©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton 7 - 25 Example 7-31 A Japanese clothing wholesaler was preparing its sales budget for the first quarter of 2008, Forecast sales (in thousands) are as follow: l January 200,000 l February 220,000 l March 240,000 Sales are 20% cash and 80% on credit, fifty percent of the credit accounts are collected in the month of sale,40% in the month following the sale and 10% in the following month, no uncollectible accounts are anticipated, Accounts receivable at the beginning of 2008 are 96 million (10% of Nov, credit sales of 180 million and 50% of December credit sales are 156 million), Prepare a schedule showing sales and cash collection for January, February and March, 2008,

©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton 7 - 26 Solution Sales Budget Jan, Feb, March, Credit sales (80%) 160000 176,000 192,000 Cash sales (20%) 40,000 44,000 48,000 Total Sales (100%) 200,000 220,000 240,000 Cash Collection Cash sales this month 40000 44000 48000 50% of this month’s credit sales 80000 88000 96000 40% of last month’s credit sales 62400 64000 70400 10% of next-to-last month’s credit sales 18000 15600 16000 Total Collection 200400 211600 230400

©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton 7 - 27 Purchases Budget Budgeted purchases = Desired ending inventory + Cost of goods sold – Beginning inventory

©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton 7 - 28 Disbursements for Purchases l For example, 50% of the current month’s purchases and 50% of the previous month’s purchases may be included, l The total disbursements are then used in preparing the cash budget,

©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton 7 - 29 Example 7- 33 Quantrill Furniture Mart plans inventory levels (at cost ) at the end of each month as follow: May, 275,000, June,220,000, July,270,000, August, 240,000. Sales are expected to be June, 440,000, July,350,000 and August, 420,000. cost of good sold is 60% of sales, purchase in April were 250,000, in May, 180,000. A given month’s purchase are paid as follows: 10% during that month, 80% the next month, and the final 10% the next month, Prepare budget schedule for June, July, and August for purchases and disbursements,

©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton 7 - 30 Solution Purchase Budget June July August COGS (60% sales) 264,000 210,000 252,000 + Ending Inventory 220,000 270,000 240,000 Total needed 484,000 480,000 492,000 - Beginning inventory 275,000 220,000 270,000 Purchases 209,000 260,000 222,000 Disbursement for purchases 10% of this month’s purchase 20900 26000 22200 80% of last month’s purchase 144000 167200 208000 10% of second last month’s purchase 25000 18000 20900 Total cash disbursement 189900 211200 251100

©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton 7 - 31 Example 7-34 The inventory of the Dublin appliance company was 210,000 on May 31, the manager was upset because the inventory was too high, she has adopted the following policies regarding merchandise purchases and inventory: l At the end of any month, the inventory should be L,E 15,000 plus 90% of the cost of goods to be sold during the following month, l The cost of merchandise sold average 60% of sales, l Purchase term are generally net 30 days l A given month’s purchases are paid as follow: 20% during that month and 80% during the following month, Purchases in may had been L,E 150,000, Sales are expected to be June,300,000, July, 290,000, August, 340,000, and Septmber, 400,000, 1) Compute the amount by which the inventory in May 31 exceeds the manager’s policies, 2) Prepare budget schedule for June, July, and August for purchase and disbursement for purchases,

©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton 7 - 32 Solution l Purchase Budget June July August Ending Inventory 171600 198600 231000 + COGS 180,000 174,000 204000 ( 60% of sales ) Total needed 351600 372600 435000 - Beginning Inventory 210,000 171600 198600 Purchases 141600 201000 236400 Disbursement for purchases 20% of the month’s purchase 28320 40200 47280 80% of last months purchase 120,000 113280 160800 Total disbursement for purchases 148320 153480 208080

©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton 7 - 34 Cash Budget A statement of the firm's planned inflows and outflows of cash that is used to estimate its short term cash requirements,

©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton 7 - 35 Preparing the cash budget: Cash receipt: l All of a firm's inflows of cash during a given financial period, the most common component of cash receipts are cash sales, collection of accounts receivable, and other cash receipts,

©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton 7 - 36 Preparing the cash budget Cash Disbursements All outlays of cash by the firm during a given financial period, the most common cash disbursement are: Cash purchases Fixes asset outlays Payments of accounts payable Interest payments Rent (and lease payment) Cash dividends payment Wages and salaries Principle payments (loans) Repurchases or retirements of stock Tax payment

©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton 7 - 37 Cash Budget The cash budget has the following major sections: – total cash Receipts – cash disbursements – minimum cash balance desired – financing requirements – ending cash balance

©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton 7 - 38 The total cash available before financing (A) equals the beginning cash balance plus cash receipts and this receipts depend on collection from customers, accounts receivable and cash sales and other operating income sources, Cash disbursement (B) for a) purchases depend on the credit terms extended by suppliers and the bill paying habit of buyer, b) Payroll depends on wages, salary, and commission terms and payroll dates, c) Some costs and expenses depends on contractual terms for installment payments, mortgage payments, rents leases and miscellaneous items, d) Other disbursements include outlays for fixed assets, long term investments, dividends and the like,

©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton 7 - 39 Cash Budget Management determines the minimum cash balance desired depending on the nature of the business and credit arrangements,

©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton 7 - 40 Cash Budget Financing requirements depend on how the total cash available (A) compares with the total cash needed (C)

©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton 7 - 41 Needs include the disbursements (B) plus the desired ending cash balance, if the total cash available is less than the cash needed, browning is necessary, if there is an excess,loans May be repaid, the outlays for interest expenses Are usually contained in this section of the Cash budget,

©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton 7 - 42 The ending cash balance is A-B ± D,financing has either a positive (borrowing) or a negative (repayment) effect on the cash balance,

©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton 7 - 43 Example : The Cooking Hut Cooking Hut company (CHC), a local retailer of a wide variety of kitchen and dining room items, CHC management prepares a continuous budget to aid financial and operating decisions, for simplicity, the planning horizon is only four months, April through July, in the past sales have increased during this season, however the company’s collections have always lagged well behind its sales, to help meet this cash squeeze, CHC has used short term loans from local banks, paying them back when cash comes in, the firm plans to keep on using this system, sales in March were 40,000, monthly sales are forecasted as follow: April $50,000 May $80,000 June $60,000 July $50,000 August $40,000 Management expect future sales to follow past experience, customers pay 60% of the sales in cash, 40 % on credit, CHC collect all credit accounts in the month following the sales, uncollectible accounts are negligible and thus ignored

©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton 7 - 44 Because deliveries from suppliers and customer demands are uncertain,, at the end of each month CHC wants to have on hand a basic inventory of items valued at $ 20,000 plus 80% of the expected C,G,S for the following month, The cost of merchandise average 70% of sales, the purchase term available for CHC are net 30 days, CHC pays for each month’s purchase as follow: 50% during that month and 50% during the next month, CHC pays wages and commissions semimonthly, half a month after they are earned, they are divided into two portions, monthly fixed wages of $ 2500 and commissions equal to 15% of sales, in addition to buying new fixtures for $ 3000 cash in April, CHC has miscellaneous expenses 5% of sales, Rent $2000 paid as incurred, insurance $200 per month, depreciation (including new fixtures) $500 per month, the company want to have a minimum of $ 10,000 as a cash balance at the end of each month, CHC can borrow or repay loan in multiples of $ 1000, assume that borrowing occur at the beginning and repayment at the end of the monthes, CHC pays interest in cash when it repays the related loans, the interest rate is 12% per year,

©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton 7 - 45 Solution Schedule : a March April May June July Total Sales Budget Credit sales,40% $16,000 $20,000 32000 $24,000 20,000 Plus Cash, 24,000 30,000 48000 36,000 30,000 Sales, 60% Total sales 40,000 50,000 80000 60,000 50,000 240,000 Schedule : b Cash Collections Cash sales this month 30,000 48000 36,000 30,000 Plus 100% of last month’s credit sales 16,000 20000 32,000 24,000 Total Collections 46,000 68000 68,000 54,000

©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton 7 - 46 Schedule C: purchase budget March April May June July Totall Desired ending inv, 48,000* 64,800 53600 48,000 42,400 Plus C,O,G,S 28,000 35,000 56,000 42,000 35,000 168000 Total needed 76,000 99,800 109,600 90,000 77,400 Less beginning Inventory 42,400* 48,000 64,800 53,600 48,000 Purchases 33,600 51,800 44,800 36,400 29,400 Schedule d : Disbursements for prchases 50% of last month’s purchase 16,800 25,900 22,400 18,200 Plus 50% of this month’s purchases 25,900 22,400 18,200 14,700 Disbursements for purchases 42,700 48,300 40,600 32,900

©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton 7 - 47 Operating Expense Budget March April May June July Total Wages (fixed) commissions (15% of current month’s sales) 2,500 2,500 2,500 2,500 2,500 commissions (15% of current month’s sales) 6,000 7,500 12,000 9,000 7,500 Total wages and commissions 8,500 10,000 14,500 11,500 10,000 46,000 Miscellaneous expenses 2,500 4,000 3,000 2500 12000 (5% of current sales) Rent (fixed) 2,000 2,000 2,000 2,000 8,000 Insurance(fixed) 200 200 200 200 800 Deprecation(fixed) 500 500 500 500 2,000 Total operating expenses 15,200 21,200 17200 15,200 68,800

©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton 7 - 48 Disbursements for Operating Expenses March Wages and commissions: April May June July 50% of last month’s expenses 4,250 5,000 7,250 5,750 50% of this month’s expenses 5,000 7,250 5,750 5,000 Total wages and commissions 9,250 12,250 13,000 10,750 Miscellaneous expenses 2,500 4,000 3,000 2,500 Rent 2,000 2,000 2,000 2,000 Total Disbursements 13,750 18,250 18,000 15,250

©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton 7 - 49 Cash Bdget April May June July Total Begining cash balance 10,000 10,550 10,980 10,080 10000 Minimum cash balance 10,000 10,000 10,000 10,000 10000 Desired available cash (X) $ 0 $ 550 $980 $ 80 0 Cash receipts and disbursement: Collections from customers (Schedule b*) 46,000 68,000 68,000 54,000 236000 Payments for merchandise (schedule d) ( 42,700) (48,300) (40,600) (32,900) (164500) Payment for operating expenses (13,750) (18,250) (18,000) (15,250) (62250) Purchase of new fixtures (given) ( 3000) ---------- -------- -------- (3000) Net cash receipts and disbursements (y) (13,450 1450 9400 5850 3250 Excess (deficiency) of cash Before financing (X+Y) (13450) 2000 10380 5930 3250 Financing: - Borrowing (at beginning of month) 14000 14000 Repayments (at end of month) - (1000) (10000) (3000) ( 14000) Interest payments (at 12 % per year*) - (20) (300) (120) ( 440 ) Total cash increase (decrease) from financing(Z) 14000 (1020) (10300) (3120) (440) Ending cash balance (beginning balance +y+z) 10550 10980 10080 12810 12810

©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton 7 - 50 Cash Budget April May June July Total Begining cash balance 10,000 10,550 10,980 10,080 10000 Collections from customers (Schedule b*) 46,000 68,000 68,000 54,000 236000 ---------------------------------------------------------------- Total Cash Available (A) 56000 78550 78980 64080 246000 Cash Disbursement: Payments for merchandise (schedule d) ( 42,700) (48,300) (40,600) (32,900) (164500) Payment for operating expenses (13,750) (18,250) (18,000) (15,250) (62250) Purchase of new fixtures (given) ( 3000) ---------- -------- -------- (3000) ------------------------------------------------------------ Total Cash Disbursements (B) 59450 66550 58600 48150 229750 Minimum cash balance 10,000 10,000 10,000 10,000 10000 ------------------------------------------------------------------- Total Cash Needed (C) 69450 76550 68600 58150 239750 Excess (deficiency) of cash Before financing (A-C)) (13450) 2000 10380 5930 3250 Financing: - Borrowing (at beginning of month) 14000 14000 Repayments (at end of month) - (1000) (10000) (3000) ( 14000) Interest payments (at 12 % per year*) - (20) (300) (120) ( 440 ) Total cash increase (decrease) from financing(D) 14000 (1020) (10300) (3120) (440) Ending cash balance (beginning balance A-B+D) 10550 10980 10080 12810 12810 -

©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton 7 - 51 Example: 2 Coulson industries a defense contractor, is developing a cash budget for October, November and December, Coulson's sales in August and September were $100,000 and $200,000 respectively, Sales of $ 400,000, 300,000 and 200,000 have been forecasted for October, November and December, respectively, Historically, 20% of the firm's sales have been for cash, 50% have generated accounts receivable collected after 1 month, and the remaining 30% have generated accounts receivable collected after 2 months, Bad- debt expenses (Uncollectible accounts) have been negligible, In December, the firm will receive a $30,000 dividend from stock in a subsidiary, Required : Prepare a schedule of expected cash receipts for the company,

©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton 7 - 52 Solution 1)A schedule of projected cash receipts ($000) Aug Sep Oct, Nov, Dec, Forecasted sales $100 $200 $400 $300 $200 Cash Sales (,20) 20 40 80 60 40 Collection of A/R Lagged 1 month (0,50) 50 100 200 150 Lagged 2 months(0,30) 30 60 120 Other cash receipts 30 Total cash receipts $210 $ 320 $340

©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton 7 - 53 2) Cash Disbursement Purchases: The firm's purchases represent 70% of sales, of this amount, 10% is paid in cash,70% is paid immediately in the month following the month of purchase, and the remaining 20% is paid 2 months following the month of purchase, Rent payments: Rent for $ 5000 will be paid each month, Wages and salaries :Fixed salary cost for the year is $ 96,000, or $8000,000 per month, in addition, wages are estimated as 10% of monthly sales, Tax payment: Taxes of 25,000 must be paid in December Fixed assets outlays: New machinery costing $ 130,000 will be purchased and paid in November, Interest payments: An interest payment of $10,000 is due in December, Cash Dividends payment: Cash dividends of $20,000 will be paid in October, Principal payment (Loans) A $20,000 principal payment is due in December, Repurchase or retirement of stocks: No repurchase or retirement of stocks is expected between October and December, Required: Prepare expected cash disbursement,

©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton 7 - 54 2)A schedule of projected cash Disbursement ($000) Aug Sep Oct, Nov, Dec, Purchases (,070 x Sales) $100 $200 $400 $300 $200 Cash Purchases (,10) 7 14 28 21 14 Payment of A/ P Lagged 1 month (0,70) 49 98 196 147 Lagged 2 months (0,20) 14 28 56 Rent Payments 5 5 5 Wages and salaries 48 38 28 Tax payments 25 Fixed assets outlays 130 Interest payments 10 Cash dividends payments 20 Principal payments 20 Total cash disbursement $213 $418 $305 Total cash receipts $210 $ 320 $340

©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton 7 - 55 3) Cash Budget for Coulson Industries( $000 Oct Nov, Dec, Total Cash receipts $210 $320 $340 Less: Total cash disbursement 213 418 305 Net cash flow (3) (98) 35 Add: Beginning Cash 50 47 (51) Ending cash 47 (51) (16) Less: Minimum cash balance 25 25 25 Required total financing(Notes payable) --- (76) 41 Excess cash balance (marketable securities) 22 ---- --- End of month balance ($000) Amount Oct, Nov, Dec, Cash 25 25 25 Marketable Securities 22 0 0 Notes Payable 0 76 41

©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton 7 - 56 Budgeted Balance Sheet The final step in preparing the master budget is to construct the budgeted balance sheet that projects each balance sheet item in accordance with the business plan,

©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton 7 - 57 Participative Budgeting l Budgets created with the active participation of all affected employees are generally more effective than budgets imposed on subordinates, l This involvement is usually called participative budgeting,

©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton 7 - 59 Importance of Budgets to Managers The budgetary process compels managers to think and to prepare for changing conditions,

©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton 7 - 60 Importance of Budgets to Managers Cash budget helps management to avoid having Unnecessary idle cash, on the one hand, and unnecessary Cash deficiencies, on the other hand, as well managed financing program keeps cash balances from Becoming too large or too small

7 - 1 ©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton Chapter 7 The Master Budget: Overall.

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7 - 1 ©2002 Prentice Hall Business Publishing, Introduction to Management Accounting 12/e, Horngren/Sundem/Stratton Chapter 7 The Master Budget: Overall.

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