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ACC 315 Chapter 6
Master Budget and Responsibility Accounting
Term | Definition |
---|---|
Budget | Quantitative expression for a set time period of a plan of action and an aid to coordinating and implementing that plan |
Major Features of Budget (2) | The budget cycle Coordinates all the financial projections from the organization's individual budgets in a single organization-wide set of budget for a set time period |
Advantages of budgets (4) | -Compels planning including implementation -Provides Performance Criteria -Motivates managers and other employees -Provides a framework for judging performance and facilitating learning |
Advantages of budgets (Promoting communication and coordination with the organization) Coordination | Meshing and Balancing all aspects of production or service and all departments in a company in the best way for the company to meet its goal |
Advantages of budgets (Promoting communication and coordination with the organization) Coordination and forces what? | Forces executives to think of relationships among individual departments within the company |
Advantages of budgets (Promoting communication and coordination with the organization) Communication | Making sure those goals are understood by all employees |
Types of budget (Time lengths) | Strategic, long term, short term, (operating) budgets |
Types of Budgets (Time Coverage) (Product Life Cycle, One Year, Rolling Budgets) Rolling Budget | Continuous budget is a budget that is always available for a specified future period |
Pro forma statements | budgeted financial statements |
Targeting | Budgeting |
Profit Plan | Budget |
The Master Budget expresses | management's operating and financial plans for a specified period (usually a fiscal year), and it includes a set of budgeted financial statements |
The Master Budget evolves | from both operating and financing decisions made by managers |
The master budget: Operating decisions | Deal with how to best use the limited resources of an organization |
The master budget: Financing decisions | Deal with how to obtain the funds to acquire those resources |
Steps in preparing the operating budget | Sales (Revenue) Budget: Units of product to be sold Production budget (Units to be produced: Sales +Target Ending FGI - Beginning FGI) Direct Material Budget (Usage and Purchases) -Usage (Cover Production) -Purchases (Production needs + Target Endi |
Steps in preparing the financial budget | -Capital Budget -Cash Budget -Budgeted balance sheet -Budgeted statement of cash flows |
Computer Based Financial Planning Models: Master Budget is basis for | sensitivity (what-if) analysis- an integral component of the financial planning process |
Computer based planning models have facilitated the use of | sensitivity analysis |
Enterprise Resource Planning (ERP) systems | Perform calculations for these planning models |
Enterprise Resource Planning (ERP) simplify | budgeting and reduce the computational burden and time required to prepare budgets and store vast quantities of info |
Kaizen Budgeting | Budgeting approach that projects costs based on future improvements rather than current practices and methods |
Activity based budgeting | focuses on the costs of activities necessary to product and sell products and services |
Four Key Steps in Activity based budgeting: | -Determine the budgeted costs of performing each unit of activity at each activity area -Determine the demand for each individual activity based on budgeted production, net product development, and so on -Compute the costs of performing each activity |