Professional Documents
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LEARNING OBJECTIVES
1. Discuss budgeting & its role in planning,
control, & decision making.
2. Define & prepare a master budget, identify
its major components, & outline the
interrelationships of its various
components.
Continued
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LEARNING OBJECTIVES
3. Describe flexible budgeting, & list the
features that a budgetary system should
have to encourage managers to engage in
goal-congruent behavior.
4. Explain how activity-based budgeting
works.
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QUESTIONS TO THINK ABOUT:
Dr. Jones, DDS
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QUESTIONS TO THINK ABOUT:
Dr. Jones, DDS
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QUESTIONS TO THINK ABOUT:
Dr. Jones, DDS
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LEARNING OBJECTIVE
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LO 1
PLANNING: Definition
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LO 1
CONTROL: Definition
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LO 1
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PLANNING, CONTROL & LO 1
BUDGETS
Budgets provide
feedback for
investigation on
achieving the
strategic plan.
EXHIBIT 8-1
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LO 1
ADVANTAGES OF
BUDGETING
A budgetary system provides the following
advantages:
Forces managers to plan
Provides information that can be used to
improve decision making
Provides a standard for performance evaluation
Improves communication & coordination
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LO 1
BUDGETS
Improve decision making
Set standards
Compare actual to budgeted results
Communicate & coordinate
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LEARNING OBJECTIVE
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LO 2
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LO 2
What is a “continuous”
budget?
A continuous budget is a
moving 12-month budget,
adding a month as each
month expires.
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LO 2
Operating budget
Describes income generating activities of a firm
Financial budgets
Detail inflows & outflows of cash
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LO 2
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LO 2
SALES BUDGET
Schedule 1 describes
expected sales in
units & dollars.
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LO 2
Units to be produced =
Expected unit sales +
Units in ending inventory –
Units in beginning inventory
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LO 2
PRODUCTION BUDGET
Schedule 2 describes
units to be produced
to meet Sales Budget.
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LO 2
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LO 2
FORMULAS: Purchases
Direct materials purchases budget tells
amount & cost of raw materials purchased in
each period.
DM PURCHASES BUDGET
Schedule 3
describes DM
to be purchased
to meet
Production
Budget.
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LO 2
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LO 2
OVERHEAD BUDGET
Schedule 5 shows
expected indirect
costs needed to meet
Production Budget.
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LO 2
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LO 2
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LO 2
CGS BUDGET
Schedule 7 presents the
expected cost of goods
sold for the year.
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LO 2
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LO 2
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LO 2
BUDGETED INCOME
STATEMENT
Schedule 9 presents
a projected income
statement.
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LO 2
FINANCIAL BUDGETS
1. Cash budget
2. Budgeted balance sheet
3. Budget for capital expenditures
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LO 2
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LO 2
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LO 2
CASH BUDGET
Schedule 10
presents projected
cash needs.
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MASTER BUDGET LO 2
INTERRELATIONSHIPS
EXHIBIT 8-5
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LO 2
Schedule 11
presents end of
year balance sheet.
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LEARNING OBJECTIVE
Describe flexible
3
budgeting & features
that should encourage
goal-congruent
behavior.
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LO 3
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LO 3
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LO 3
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LO 3
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LO 3
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LO 3
What is participative
budgeting?
Participative budgeting
involves subordinate
managers in setting budget
targets to achieve goal
congruence.
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LO 3
PARTICIPATIVE BUDGETING
Potential problems
Setting standards either too high or too
low
Building slack (padding) into the budget
Deliberately underestimating revenues,
overestimating costs
Pseudoparticipation
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LO 3
CONTROLLABLE COSTS:
Definition
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LEARNING OBJECTIVE
4
Explain how activity-
based budgeting
works.
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LO 4
ACTIVITY-BASED BUDGETING
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LO 4
EXHIBIT 8-10
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CHAPTER 8
THE END
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