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Traditions and Innovations
Cost Accounting Traditions and Innovations Barfield, Raiborn, Kinney Chapter 13 The Master Budget
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Learning Objectives (1 of 2)
Explain why budgeting is important Describe how strategic and tactical planning are related to budgeting Identify the starting point of a master budget Prepare various master budget schedules
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Learning Objectives (2 of 2)
Explain how the master budget schedules relate to one another Clarify why the cash budget is important in the master budgeting process (Appendix) Explain how a budget manual facilitates the budgeting process
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Planning is the cornerstone of effective management
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Terms Budgeting - Formalizes plans and translates qualitative narratives into a documented, quantitative format Budget - Expresses a commitment to planned activities and resource acquisition and use
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Budgets Communicate objectives, constraints, and expectations
Provide financial predictions Identify potential problems Determine resource allocation and constraints Permit control through budget-to-actual comparisons
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The Planning Process Strategic Planning Tactical Planning Budget
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Strategic Planning Long-term (5 to 10 years) Top-level management
Long-range goals, strategies, and policies Foundation for short-term planning Identify and gather information on key variables, both internal and external
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External Key Variables
Competitor actions U.S. market conditions U.S. political/regulatory climate Emerging technology issues Consumer trends and attitudes International market conditions Demographics International political/regulatory climate
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Tactical Plans Short-term (1 to 18 months) Top and mid-management
Specific objectives and means to achieve strategic plans Basis against which results can be measured
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Budgeting Short-term Top, mid, and operational management
Usable guidelines to implement strategic and tactical plans Allocates resources Standard against which performance can be measured
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The Control Phase Actual-to-budget comparisons
Determining and investigating variances Corrective action Feedback to operating managers Budget
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The Balanced Scorecard
Financial performance Customer satisfaction Innovation and learning Key performance indicators Measures Short-term performance Indicators of future success
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The Master Budget Operating Budget Financial Budget Cash Budget
Sales Budget Cash Budget Production Budget Capital Expenditures Budget Purchases Budget Balance Sheet Direct Labor Budget Income Statement Overhead Budget Statement of Cash Flows Selling & Administrative Budget Statement of Retained Earnings
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The Operating Budget Sales Budget
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Sales Forecast Ask sales personnel Extrapolate past trends
Use market research Employ statistical models and simulation Sales Forecast
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The Operating Budget Sales Budget Production Budget
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The Operating Budget Sales Budget Production Budget Purchases Budget
Overhead Budget Direct Labor Budget
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Selling Expense Budget
The Operating Budget Sales Budget Selling Expense Budget Admin Expense Budget Production Budget Purchases Budget Overhead Budget Direct Labor Budget
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The Financial Budget Operating Budget
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The Financial Budget Cash Budget Capital Budget Operating Budget
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The Financial Budget Cash Budget Capital Budget Income Statement
Operating Budget
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Statement of Retained Earnings
The Financial Budget Cash Budget Capital Budget Income Statement Operating Budget Statement of Retained Earnings
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Statement of Retained Earnings
The Financial Budget Cash Budget Capital Budget Income Statement Operating Budget Statement of Retained Earnings Balance Sheet
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The Financial Budget Statement of Cash Flows Cash Budget
Capital Budget Income Statement Operating Budget Statement of Retained Earnings Balance Sheet
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Budgets Provide Guide to align activities and resources with organizational goals Vehicle to promote employee participation, cooperation, and departmental coordination Tool to enhance planning, controlling, problem solving, and evaluating Budget
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Budgeting Provides Basis to sharpen responsiveness to internal and external factors Model to view future performance and consider alternative measures Budget
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Budgeting Terms Continuous budgeting 12-month rolling budget
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Budgeting Terms Continuous budgeting Budget slack
intentional underestimation of revenue intentional overestimation of expenses overcome by linking actual performance to budget through a bonus system
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Budgeting Terms Continuous budgeting Budget slack Participatory budget
developed by top management and operating personnel
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Budgeting Terms Continuous budgeting Budget slack Participatory budget
Imposed budgets developed by top management imposed on operating personnel
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Activity Budget Map line items in budget to list of activities
Raise awareness of non-value-added activities Question and reduce non-value-added costs Budget
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Budget Manual Statements of budgetary purpose and its desired results
Listing of specific budgetary activities to be performed Calendar of scheduled budgetary activities Sample of budgetary forms Original, revised, and approved budgets
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Questions How are strategic and tactical planning related to budgeting? In what order are the master budget schedules prepared? Why is the cash budget important in the master budgeting process?
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