1. Managerial Accounting: An Introduction To Concepts, Methods, And Uses
Chapter 9
Profit Planning and Budgeting
Maher, Stickney and Weil

2. Learning Objectives (Slide 1 of 2)
Explain the use of a budget as a tool for planning and performance evaluation.
Explain how a budget can affect employee motivation.
Compare the four types of responsibility centers.
Describe the master budget.

3. Learning Objectives (Slide 2 of 2)
Explain the difference between a flexible budget and master budget.
Describe ethical dilemmas in budgeting.
List the components of a comprehensive master budget. (Appendix 10.1)
Describe an incentive model for accurate reporting. (Appendix 10.2)

4. Organizational Plan
Define its three parts

5. Describe the Master Budget

6. Interaction in Developing the Master Budget
Organizational
Individual
Organizational
Goals
Long-Range
Strategic Plan
Individual
Goals & Values
Anticipated
Conditions for
Budget Period
Individ. Beliefs
& Expectations
Master Budget
Strategic
Evaluation
Actual Period
Reported
Results
Periodic
Performance
Evaluation

7. Employee Participation in Developing Budgets
Define Participative budgeting –

8. Performance Evaluation
Budgets provide estimates of expected performance
Comparing budgeted with actual results provides a basis for evaluating performance
Budgets must be prepared for individual responsibility centers in order to use them to evaluate performance

9. Responsibility Centers (Slide 1 of 2)
Define A responsibility center

10. Responsibility Centers (Slide 2 of 2)
Responsibility centers can be classified as follows (continued):
Profit centers - mgmt is responsible for both revenues and costs
Investment centers - mgmt is responsible for revenues, costs, and assets

11. Discuss Flexible Budgets
Shows the expected relation between costs and volumes
Has two components, what are they?

12. Explain Cost Hierarchies

13. Forecasting Sales
Developing the master budget starts with forecasting sales
Various methods and sources used to obtain sales forecasts include:
Sales staff
Market research
Delphi technique
Trend analysis
Econometric Models

14. Production Budget (Slide 1 of 3)
The production budget is based on the sales budget and estimates of beginning and desired ending inventories
Production is calculated as follows:
Number of Units to Be Sold
+Units in Ending Inventory
-Units in Beginning Inventory
Units to Be Produced

15. Production Budget (Slide 2 of 3)
After determining the number of units to be produced, we can budget for the following:
Direct materials - traceable to units produced and almost always a variable cost
Direct labor - traceable to units produced; usually a variable cost but could be a fixed cost

16. Production Budget (Slide 3 of 3)
We assume direct labor is a variable cost in this chapter
Manufacturing overhead - typically has both variable and fixed components; variable overhead varies with units produced, fixed overhead gives a firm production capacity

17. Describe the Marketing and Administrative Budgets

18. Discretionary Fixed Costs
Many “fixed” costs are really discretionary costs
They are budgeted as fixed costs but if, for example, the economic conditions look bad, these costs can be reduced
Examples: maintenance, advertising
Discretionary fixed costs should be distinguished from committed fixed costs, like rent on a factory building, which are required to run the firm

19. Comment on the Budgeted Income Statement

20. Discuss the Need for Accurate Forecasts

21. Using the Master Budget
What does the master budget include?

22. Compare Flexible and Master Budgets

23. Budgeting in Nonprofit organizations
The master budget is important in nonprofit organizations
Used as a basis for authorizing the expenditure of funds
In governmental units, the budget is a legal authorization for expenditure
Penalties for exceeding authorized expenditures can be severe

24. Review Ethical Issues in Budgeting

25. Review Ethical Issues in Budgeting

26. Dr. Michael Blue, CFE, CPA, CMA blue@bloomu.edu
If you have any comments or suggestions concerning this PowerPoint Presentation for Managerial Accounting, An Introduction To Concepts, Methods, And Uses, please contact:
Dr. Michael Blue, CFE, CPA, CMA
Bloomsburg University of Pennsylvania