ch 21 acctg

responsibility center

A budgetary unit of a company Each responsibility center is led by a manager who has the authority and responsibility for achieving the center's budgeted goals

Types of budgeting systems: continuous budgeting

A variation of fiscal-year budgeting, called continuous budgeting, maintains a 12-month projection into the future

feedback about responsibility centers

As time passes, the actual performance of a responsibility center can be compared against the budgeted goals. This provides prompt feedback to managers and employees about their performance. If necessary, responsibility centers can use such feedback to adjust their activities in the future

effects of budgeting

Budgeting affects the following managerial functions: -Planning, which involves setting goals to guide decisions and help motivate employees. -Directing, which involves decisions and actions to achieve budgeted goals. -Controlling, which involves comparing actual performance against the budgeted goals.

Budgets

play an important role for organizations of all sizes and forms. For example, budgets are used in managing the operations of government agencies, churches, hospitals, small businesses, and manufacturing companies Budgeting involves: Establishing specific goals. Executing plans to achieve the goals. Periodically comparing actual results with the goals.

Zero-based budgeting

requires managers to estimate sales, production, and other operating data as though operations are being started for the first time

Flexible budgets

show the expected results of a responsibility center for several activity levels. A flexible budget is, in effect, a series of static budgets for different levels of activity

static budget

shows the expected results of a responsibility center for only one activity level. The budget does not change even if the activity changes. A static budget is used by many service companies and for some administrative functions of manufacturing companies The disadvantage of static budgets is that they do not adjust for changes in revenues and expenses that occur as volumes change.

human behavior and budgeting

Human behavior problems can arise in the budgeting process in the following situations: -The budgeted goals are set too tight and are very hard or impossible to achieve. (This may have a negative effect on the company achieving its goals) -The budgeted goals are set too loose and are very easy to achieve. *Budget "padding" is called budgetary slack* -The budgeted goals conflict with the objectives of the company and employees. *Goal conflict occurs when employees' or managers' self-interest differs from the company's goals*

cash budget

estimates the expected receipts (inflows) and payments (outflows) of cash for a period of time