def of Budget
the quantitative expression of a proposed plan of action by management for a special period
an aid to coordinate what needs to be done in order to implement that plan
may include financial and non financial information
Ongoing Budget Process (4)
- performance is planned taking past performance in account
- distribution of goals against which actuals will compared
- accountants help managers to allocate deviations form budget
- managerns and accountants assess market feedback for next period
Advantages of budget
Provides a framework for judging performance
motivates employees
promotes coordination and communication
Components of master budgets (2)
- Operating budget.
2. Financial Budgets
Basic operating budget steps
- Pepare revenues Budget
- prepare the production budget in units
- prepare ending inventories budget
- prepare the direct manufacturing labor budget
- prepare manufacturing overhead budget
basic finanal budget steps (4)
- Prepare the capital expenditures budget
- prepare the cash budget
- prepare the budgeted balance sheet
- prepare the statement of cash flows
Types of responsibility Centers (4)
- Cost
- Revenue
- Profit
- Investment
Budgets and Feedbacks
-> feedbacks provide managers with
Budgets offer feedback in the form of variances: actual results deviate from budgeted targets: Feedbacks good for:
- earls warning of problems
- basis for performance and strategy evaluation
Controllability
Is the degree of influence that a manager has over costs and revenues
Budgeting and Human Behavior (3)
Can be abused
superiors may dominate budget process
budgetary slack can be build
Budgetary slack
is the practice of underestimating budgeted revenues to make the budgeted goals easier attainable
