AC2200 TOPIC 4 Flashcards
What is budgeting widely used for?
As an accounting tool for planning and controlling
what is budgeting
it is a qualitative expression of a proposed plan of action by management for a future time period and an aid the coordination an implementation of the plan
what are the advantages of budgeting
- improves coordination and provides advance warning of internal problems
- provided an enhanced managerial perspective
- can be used for the motivation of individual
- can be a framework of control
what are the key budgeting dimensions
- participation
- budget forecast
- budget detail
- budget model
- budget evaluation
participation
authoritarian and participatory
what is authoritarian participation?
budgeting and decision making done by a relatively few people that are concentrated in the highest level of the organization structure
what is the participatory participation?
a method of budgeting in which roles and responsabilities of putting a budget together are diffused throughout the organisations.
what are advantages of the participatory participation
shared undestanding
motivation
cost awarness
clarified roles and responsabilities
cooperation and competitonq
what are disadvantage of the participatory participation
loss of control
time consuming
high resource use
dissapointment
what are the objectives of budgeting
compels planning
communication of objectives throughout hierarchy
coordination of effort throughout the organisation
control performance
motivation
delegation and responsibility accounting
role of budget committee
- oversee budget setting process
- allocate responsibility to budget holder
- determining budget reporting timetable
- agreeing final budgets
- regular monitoring budgetary performance
- taking appropriate control action
- ensuring appropriate training, support and censure of budget holder
the budgeting cycle
- planning the performance of the organization
- provide a frame of reference, a set of specific expectations against which actual results can be compared
- investigating variations from plan
- correcting action follows, if necessary
- planning again
budget periods
ordinarly they are set to over a one year period
what is a continuous perpetual budget
a 12 month budget that rolls forward one month as the current month is completed
what is a master budget
a comprehensive expression of managments operating and financial plan for a future time period.
What are the two major parts we find in a master budget
operating budget and financial budget
what do operating decisions centre on?
the use of scarce resources
what do financing decisions centre on?
how to obtain the funds to acquire those resources
what do we find in the operating budget?
supporting budget schedules
revenue budget
production budget in units
direct material purchase budget
direct labour budget
cost of goods sold budget
non wmanufacturing cost budget
what do we find in the financial budget
cash budget
budgeted balance sheet
budgeted statement of cash flows
what is the sales budget
it is the starting point in the master budget, it is a detailed schedule showing expected sales for the coming period expressed in units and in pounds
what does the direct material budget detail
is details the raw materials that must be purchased to fulfil the production budget and to provide for adequate inventory
what do we find in the direct labour budget
it is also developed from the product budget
what do we find in the manufacturing overhead budget
a schedule of all costs of production other than direct material and direct labour
give me a key budget
a cash budget
what is a cash budget
an estimation of the cash flows of a business over a specific period of time.
what are problems in budgeting
- can be seen as pressure devices imposed by managers
- departamental conflicts can arise : disputes over resources allocations or departments blaming each other if the targets arent achieved
- difficult to reconcile individual and corporate goals
- managers may overestimate costs so that they will not be blamed in the future should they overspend
