chapter 13 the master budget cost accounting traditions and innovations barfield, raiborn, kinney
TRANSCRIPT
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Chapter 13
The Master Budget
Cost AccountingTraditions and Innovations
Barfield, Raiborn, Kinney
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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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Management
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 BudgetSales BudgetProduction BudgetPurchases BudgetDirect Labor BudgetOverhead Budget
Selling & Administrative Budget
Cash BudgetCapital Expenditures
BudgetBalance SheetIncome Statement
Statement of Cash Flows
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
SalesForecast
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The Operating Budget
Sales Budget
Production Budget
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The Operating Budget
Sales Budget
Production Budget
Overhead Budget
Direct Labor Budget
Purchases Budget
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The Operating Budget
Sales Budget
Production Budget
Overhead Budget
Direct Labor Budget
Purchases Budget
Admin Expense Budget
Selling Expense Budget
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The Financial Budget
Operating Budget
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The Financial Budget
Operating Budget
Cash Budget
Capital Budget
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The Financial Budget
Operating Budget
Cash Budget
Capital BudgetIncome
Statement
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The Financial Budget
Operating Budget
Cash Budget
Capital BudgetIncome
Statement
Statement of Retained Earnings
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The Financial Budget
Operating Budget
Cash Budget
Capital BudgetIncome
Statement
Statement of Retained Earnings Balance Sheet
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The Financial Budget
Operating Budget
Cash Budget
Capital BudgetIncome
Statement
Statement of Retained Earnings Balance Sheet
Statement of Cash Flows
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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?