1. Budgetary planning I Budget is:
OHP 220
Budgetary planning I
Budget is:
quantified plan aimed at achieving some objective(s)
Strategic budgets
Tactical budgets
(annual budgets)
Operational budgets (standard costs)

2. Provide performance benchmark Provide financial control mechanism
OHP 221
Objectives of budgets
Compel planning
Provide performance benchmark
Provide financial control mechanism
Provide motivational impetus
Medium of communication
Promote goal congruence
Instil financial awareness
Enable delegation

3. Budgets: potential problems Producing credible estimates
OHP 222
Budgets: potential problems
Producing credible estimates
Bureaucratic ‘overkill’
Encouraging excessive caution by management
Behavioural implications

4. OHP 223
Budget committee
Exists in larger organisations to oversee/co-ordinate budgetary preparation and monitoring
Typical functions
- conversion of strategic to
tactical and operational budgets
- negotiation of functional budgets
- approval of functional budgets and master budget
- investigation of variances
- resolution of disputes

5. Master budget typically comprises: - cash budget
OHP 224
Master budget
Summarises budgets of individual functions/departments within the organisation (‘functional budgets’)
Master budget typically comprises:
- cash budget
- budgeted profit & loss account
- budgeted balance sheet

6. Pre-determined unit costs/selling prices
OHP 225
Standard costs
Pre-determined unit costs/selling prices
Require estimates of:
- resource inputs per unit of output
- cost of resource inputs
- selling price per unit

7. Assumes maximum efficiency Currently attainable standard
OHP 226
Types of standard
Ideal standard
Assumes maximum efficiency
Currently attainable standard
Based on efficient operation under current conditions (typically specified in annual budget)
Basic standard
Medium-term standard based on efficient performance over, say, 3–5 years

8. Objectives of standard costing Improve accuracy of budgets
OHP 227
Objectives of standard costing
Improve accuracy of budgets
Instil cost consciousness
Encourage search for improved methods
Permit detailed analysis of financial control data
Provide superior costing/pricing basis to that of actual figures

9. Standard costing: potential problems
OHP 228
Standard costing:
potential problems
Incorporating inflation
Setting acceptable labour efficiency standard
Possibly difficult to apply to heterogeneous output
Cost of introducing and maintaining system
Danger of over-emphasising operational considerations

10. P&L, cash budget, balance sheet
OHP 229
Budget preparation
Sales budget Principal budget factor
Functional budgets
production
material usage
material purchases
labour
Master budget
P&L, cash budget, balance sheet

11. Production (purchases) required for sales (production) X
OHP 230
Production (purchases) budgets should be adjusted to allow for impact of stock:
Production (purchases) required for sales (production) X
Add Desired closing stock X X
Less Opening stock X
Production (purchases) X

12. Labour budgets should be adjusted to allow for expected idle time
OHP 231
Labour budgets should be adjusted to allow for expected idle time
Cost of expected idle time normally included in standard labour cost/unit
Material usage budgets should be adjusted to allow for expected (‘normal’) losses
Cost of expected losses normally included in standard material cost/unit