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1、Work of Management,Planning,Controlling,Directing and Motivating,Remember!,Planning and Control,Planning-involves developing objectives and preparing various budgets to achieve these objectives.,Control-involves the steps taken by management that attempt to ensure the objectives are attained.,It unc
2、overs potential bottlenecks before they occur.It coordinates the activities of the entire organization by integrating the plans and objectives of the various parts.It ensures that accounting records comply with generally accepted accounting principles.It provides benchmarks for evaluating subsequent
3、 performance.,Which of the following is not a benefit of budgeting?,Advantages of Budgeting,Advantages,Communicatingplans,Think about andplan for the future,Means of allocatingresources,Uncover potentialbottlenecks,Coordinateactivities,Define goaland objectives,Responsibility Accounting,Managers sho
4、uld be held responsible for those items and only those items thatthe manager can actually controlto a significant extent.,Fairmont Inc.uses an accounting system that charges costs to the manager who has been delegated the authority to make decisions concerning the costs.For example,if the sales mana
5、ger accepts a rush order that will result in higher than normal manufacturing costs,these additional costs are charged to the sales manager because the authority to accept or decline the rush order was given to the sales manager.This type of accounting system is known as:,A)responsibility accounting
6、.B)contribution accounting.C)absorption accounting.D)operational budgeting.,Choosing the Budget Period,Operating Budget,1999,2000,2001,2002,The annual operating budget may be divided into quarterlyor monthly budgets.,Choosing the Budget Period,1999,2000,2001,2002,Continuous or Perpetual Budget,This
7、budget is usually a twelve-month budget that rolls forward one month as the current month is completed.,Participative Budget System,Flow of Budget Data,The Budget Committee,A standing committee responsible for overall policy matters relating to the budgetcoordinating the preparation of the budget,A
8、method of budgeting in which the cost of each program must be justified every year is called:,operational budgeting.zero-based budgeting.continuous budgeting.responsibility accounting.,Zero-Base Budgeting,Managers are required to justify all budgeted expenditures,not just changes in the budget from
9、the previous year.The baseline is zero rather than last years budget.,Let us practice on the basics of budgeting!,Parlee Companys sales are 30%in cash and 70%on credit.Sixty percent of the credit sales are collected in the month of sale,25%in the month following sale,and 12%in the second month follo
10、wing sale.The remainder are uncollectible.The following are budgeted sales data:Total sales:January$60,000February$70,000March$50,000April$30,000,Total cash receipts in April would be budgeted to be:A)$38,900.B)$47,900.C)$27,230.D)$36,230.,Modesto Company produces and sells Product AlphaB.To guard a
11、gainst stockouts,the company requires that 20%of the next months sales be on hand at the end of each month.Budgeted sales of Product AlphaB over the next four months are:Budgeted sales in units JuneJulyAugustSeptember 30,000 40,000 60,000 50,000,Budgeted production for August would be:A)62,000 units
12、.B)70,000 units.C)58,000 units.D)50,000 units.,Friden Company has budgeted sales and production over the next quarter as follows:AprilMayJuneSales in units 100,000120,000?Production in units 104,000128,000156,000The company has 20,000 units of product on hand at April 1.A minimum of 20%of the next m
13、onths sales needs in units must be on hand at the end of each month.July sales are expected to be 140,000 units.,Budgeted sales for June would be(in units):A)188,000.B)160,000.C)128,000.D)184,000,Marple Companys budgeted production in units and budgeted raw materials purchases over the next three mo
14、nths are given below:JanuaryFebruaryMarchBudgeted production(in units)60,000?100,000Budgeted raw materialspurchases(in kilograms)129,000165,000188,000Two kilograms of raw materials are required to produce one unit of product.The company wants raw materials on hand at the end of each month equal to 3
15、0%of the following months production needs.The company is expected to have 36,000 kilograms of raw materials on hand on January 1.,Budgeted production for February should be:A)105,000 units.B)82,500 units.C)150,000 units.D)75,000 units.,Now,the motivational side of budgeting!,Budgets can be defined
16、as:,“a quantitative model,or summary of the expected consequences of the organizations short-term operating activities.”Management AccountingAtkinson,Banker,Kaplan&Young,What is this definition implying?,The definition suggests:,Availability of quantitative data,Predictability of short-term outcomes
17、,Clear-cut organizational structures.There is one major logical problem,which is?If the above are true,what do you need the budget for?,The budgetary process is rather a process,To quantify“qualitative”judgment,To forecast the impacts of some uncertain events,To simplify the complex organizational s
18、tructures.,As Zimmerman indicated(p.244),the budget process,is a communication device involving both vertical and horizontal information transferis a negotiation and internal contracting procedureis part of the performance evaluation systempartition decision rights,Budgets to Solve“Agency”Problems,S
19、hort-term budgets as internal contracts.To formally commit responsibility centersAs a warning for future monitoring actionsLong-term budgets to reduce information asymmetry.To solicit private,specialized information from local managersForce managers to think strategically,rather than on just the sho
20、rt-term results,Budgets to Solve“Agency”Problems,Line-item budgetsAuthorize managers to spend only up to a certain amount per line itemCannot transfer excess to and from line-itemsNo incentive to reduce spendingBudget lapsing no carryovers to next periodIncentive to spend all the budgeted amountsInt
21、end to avoid managers building up slacks and smoothing performance over time,International Aspects of Budgeting,Multinational companies face specialproblems when preparing a budget.Fluctuations in foreign currency exchange rates.High inflation rates in some foreign countries.Differences in local economic conditions.Local governmental policies.,
