CH 9 Budgeting

Compare and contrast budgeting for manufacturers and for merchandisers.

. A merchandiser uses a merchandise purchases budget instead of a production budget. 2. A merchandiser does not use the manufacturing budgets (direct materials, direct labor, and manufacturing overhead).

Benefits of Budgeting

1. all management is require to PLAN AHEAD 2. provides DEFINITE OBJECTIVES 3. Creates an EARLY WARNING SYSTEM 4. facilitates COORDINATION OF ACTIVITIES 5. results in greater MANAGEMENT AWARENESS 6. MOTIVATES PERSONNEL

how to achieve budget acceptance in an organization

Budgets based on research and analysis are more likely to result in realistic goals that will contribute to the growth and profitability of a company. And, the effectiveness of a budget program is directly related to its acceptance by all levels of management.

A common starting point in the budgeting process is

sales budget

operating budget

which are the individual budgets that result in the preparation of the budgeted income statement. These budgets establish goals for the company's sales and production personnel.

financial budgets

which focus primarily on the cash resources needed to fund expected operations and planned capital expenditures. Financial budgets include the capital expenditure budget, the cash budget, and the budgeted balance sheet.

What order are the budgets prepared in the master budget.

The company first develops the operating budgets, beginning with the sales budget. Then, it prepares the financial budgets. - sales budget -production budget - DM Bud > DL Bud> MOH bud - selling and admin expens bud - budget income statement - capit exped bud> cash bud> Bud balance sheet

Know the purpose(s) of a budget

is a formal written statement of management's plans for a specified future time period, expressed in financial terms.

2 classes of budgets in master budget

operating and financial

Accounting is responsible for in terms of budgeting

setting standards of performance and providing feedback by means of variance reports, the accountant supplies much of the fundamental information required for overall planning

Know how the financing section of a cash budget is prepared

shows expected borrowings and the repayment of the borrowed funds plus interest. Companies need this section when there is a cash deficiency or when the cash balance is below management's minimum required balance.

Know the components of a cash budget.

- cash receipts - cash disbursements - financing - begin & end balancing

Define Master Budget

A set of interrelated budgets that constitutes a plan of action for a specific time period.

factors that enhance the effectiveness of a budget

Effective budgeting depends on a sound organizational structure. In such a structure, authority and responsibility for all phases of operations are clearly defined. Budgets based on research and analysis are more likely to result in realistic goals that will contribute to the growth and profitability of a company.

Know how the amount borrowed or paid is determined.

If this balance is below the company's required balance, the financing section shows the borrowings needed.

sales forecast

The projection of potential sales for the industry and the company's expected share of such sales