master budget and responsibility accounting
DESCRIPTION
Master Budget and Responsibility AccountingTRANSCRIPT
© 2012 Pearson Prentice Hall. All rights reserved.
Master Budgetingand
Responsibility Accounting
© 2012 Pearson Prentice Hall. All rights reserved.
Budget DefinedThe quantitative expression of a proposed
plan of action by management for a specified period, and
An aid to coordinating what needs to be done to implement that plan
May include both financial and nonfinancial data
© 2012 Pearson Prentice Hall. All rights reserved.
The Ongoing Budget Process:1. Managers and accountants plan the
performance of the company, taking into account past performance and anticipated future changes.
2. Senior managers distribute a set of goals against which actual results will be compared.
© 2012 Pearson Prentice Hall. All rights reserved.
The Ongoing Budget Process:3. Accountants help managers investigate
deviations from budget. Corrective action occurs at this point.
4. Managers and accountants assess market feedback, changed conditions, and their own experiences as plans are laid for the next budget period.
© 2012 Pearson Prentice Hall. All rights reserved.
Strategy, Planning, and Budgets, Illustrated
© 2012 Pearson Prentice Hall. All rights reserved.
Advantages of BudgetsProvides a framework for judging
performanceMotivates managers and other employeesPromotes coordination and communication
among subunits within the company
© 2012 Pearson Prentice Hall. All rights reserved.
Components of Master BudgetsOperating budget—building blocks leading to
the creation of the budgeted income statement
Financial budget—building blocks based on the operating budget that lead to the creation of the budgeted balance sheet and the budgeted statement of cash flows
© 2012 Pearson Prentice Hall. All rights reserved.
Basic Operating Budget Steps1. Prepare the revenues budget.2. Prepare the production budget (in units).3. Prepare the direct materials usage budget
and direct materials purchases budget.4. Prepare the direct manufacturing labor
budget.
© 2012 Pearson Prentice Hall. All rights reserved.
Basic Operating Budget Steps5. Prepare the manufacturing overhead costs
budget.6. Prepare the ending inventories budget.7. Prepare the cost of goods sold budget.8. Prepare the operating expense (period cost)
budget.9. Prepare the budgeted income statement.
© 2012 Pearson Prentice Hall. All rights reserved.
Basic Financial Budget StepsBased on the operating budgets:1. Prepare the capital expenditures budget.2. Prepare the cash budget.3. Prepare the budgeted balance sheet.4. Prepare the budgeted statement of cash
flows.
© 2012 Pearson Prentice Hall. All rights reserved.
SampleMasterBudget,Illustrated
© 2012 Pearson Prentice Hall. All rights reserved.
Other Budgeting IssuesFinancial-planning software may be
employed to conduct sensitivity (“what-if”) analysis to assist in the budgetary process.
Kaizen budgeting—incorporating continuous improvement factors in the budgeting process.
Activity-based budgeting—incorporating activity-based costing in the budgetary process.
© 2012 Pearson Prentice Hall. All rights reserved.
Sensitivity AnalysisSensitivity analysis is used to assist managers in
planning and budgeting.
Sensitivity analysis is a “what if” technique that illustrates the impact of changes from the predicted data.
Two scenarios are being considered for Stylistic Furniture’s budget for 2012.
© 2012 Pearson Prentice Hall. All rights reserved.
Budgeting and the Organization:Responsibility AccountingResponsibility center—a part, segment, or
subunit of an organization whose manager is accountable for a specified set of activities.
Responsibility accounting—a system that measures the plans, budgets, actions, and actual results of each responsibility center.
© 2012 Pearson Prentice Hall. All rights reserved.
Types of Responsibility Centers1. Cost—accountable for costs only2. Revenue—accountable for revenues only3. Profit—accountable for revenues and costs4. Investment—accountable for investments,
revenues, and costs
© 2012 Pearson Prentice Hall. All rights reserved.
Budgets and FeedbackBudgets offer feedback in the form of
variances: actual results deviate from budgeted targets.
Variances provide managers with:Early warning of problemsA basis for performance evaluationA basis for strategy evaluation
© 2012 Pearson Prentice Hall. All rights reserved.
ControllabilityControllability is the degree of influence that
a manager has over costs, revenues, or related items for which he is being held responsible.
Responsibility accounting focuses on information sharing, not in laying blame on a particular manager.
© 2012 Pearson Prentice Hall. All rights reserved.
Budgeting and Human BehaviorThe budgeting process may be abused both
by superiors and subordinates, leading to negative outcomes.
Superiors may dominate the budget process or hold subordinates accountable for events they have no control over.
Subordinates may build “budgetary slack” into their budgets.
© 2012 Pearson Prentice Hall. All rights reserved.
Budgetary SlackThe practice of underestimating budgeted
revenues, or overestimating budgeted expenses, in an effort to make the resulting budgeted goals (profits) more easily attainable.
© 2012 Pearson Prentice Hall. All rights reserved.