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BUDGETING
Sales
Inventory
projections
needs
Business
trends
New
competition
Budgeting - 2
What is a budget?
PURPOSES OF BUDGETING
FEATURES OF A SOUND
BUDGETARY SYSTEM
Participative budgeting
Frequent feedback on performance
Realistic standards
Controllability
Flexible budgeting
Multiple measures of performance
Monetary and nonmonetary incentives
Budgeting - 5
The
Budgeting
Process
Budgeting - 6
Strategic
Plan
Monitoring of
Long-Term Actual
Objectives Activity
Short-Term
Objectives
Comparison of
Short-Term Actual &
Plan Planned
Budgets Investigation
Corrective
Feedback
Action
Budgeting - 7
Sales
Production
Purchases (Direct materials)
Labor
Manufacturing overhead
Administrative
Cash
Budgeting - 8
Master
Budget
Outputs
Budgeting - 9
OPERATING BUDGETS
Sales plan
Production plan
Materials purchasing plan
Labor hiring and training plan
Capital spending plan
Administrative and discretionary
spending plan
Budgeting - 10
Sales Budget
The sales budget represents
the expected quantity
of each type of product/service
to be sold multiplied by
its expected selling price.
Budgeting - 11
Production
Note the sales
budget figure will
be the starting
point for
Units to be produced
x Raw material required per unit produced
Total raw material needed for production
+ Desired ending inventory
= Total raw material needed
- Inventory on hand
= Raw materials to be acquired
Budgeting - 14
CAPITAL BUDGET
FINANCIAL BUDGETS
BUDGETING APPROACHES
Incremental budgeting
A budgeting approach that assumes the starting
point for each budget item is the amount spent on it
in the previous budget
The new budget is seen as last years +/- a specified
increment
Less costly but may not be strategically sound
Zero-based budgeting
A budgeting approach that assumes the starting
point for each budget item is zero
Essential feature is a review of the necessity of each
expenditure element/activity as part of the
budgeting process
More costly but more strategically sound
Budgeting - 18
Behavioral
Aspects of
Budgeting
Budgeting - 19