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ACC 315 Chapter 6

Master Budget and Responsibility Accounting

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
Created by: AEA76013