chapter 8 accounting

self imposed budget or participative

A method of preparing budgets in which managers prepare their own budgets. These budgets are then reviewed by higher-level managers, and any issues are resolved by mutual agreement. many managers believe that being empowered to create self imposed budgets is the most effective method of budget preparation Recognizing individuals at all levels of the organization as team members whose views and judgments are valued by top management is an advantage of self imposed

perpetual budget

some compaines use a perpetual budget- it is a 12 month budget that continuously rolls forward one month(or quarter) at a time as the current month or quarter is completed this approach keeps managers continually focused one year ahead

Limitations of self-imposed budgeting include Blank______.

suboptimal budget recommendations budgetary slack

participative budget or self imposed

a budget that is prepared with the full cooperation and participation of managers at all levels

Challenging but highly achievable budgets increase the likelihood that lower-level managers will engage in undesirable behavior to secure their desired compensation.

false- these types of budgets decrease the likelohood undesirable behavior

planning

involves developing goals and preparing various budgets to achieve those goals

control

involves gathering feedback to ensure that the plan is being properly executed or modified as circumstances change to be effective, a good budgeting system must provide for planning and control

More accurate estimates and higher motivation are generally the result of using a(n)___ budget.

participative- continuous or perpetual budget is a 12-month budget that rolls forward one month (or quarter) as the current month (or quarter) is completed. This budget refers only to a time period and not who was involved in its preparatio

Because all other parts of the budget depend on it, if the Blank______ budget is inaccurate, the rest of the budget will be inaccurate.

sales

why do organizations create budgets?

From a planning standpoint, organizations use budgets to: 1) Encourage managers to think about and plan for the future. 2) Communicate financial goals throughout the organization. 3) Allocate resources within the organization where they can be used most effectively. 4) Coordinate the plans and activities of departmental managers. 5) Uncover potential bottlenecks before they occur. From a control standpoint, organizations compare their budgets to actual results to: 1) Improve the efficiency and effectiveness of operations. 2) Evaluate and reward employees. communicate managements plan throughout the organization

master budget

an integrated business plan that formally lays out the companys goal

what do budgets do?

coordinate the activities of the entire organization by integrating the plans of its various parts define goals and objectives that can serve as benchmarks for evaluating subsequent performance encourage managers to think about and plan for the future and the budgeting process can uncover potential bottlenecks before they occur

budgetary slack occurs when a manger submits a budget that is

to easy to attain

when profit target are set my top managers

too much slack may be allowed, goals may be unrealistically high

budgets

used for planning and control a detailed plan for the future that is usually expressed in formal quantitative terms companys budget ordinarily covers a one year period corresponding to its fiscal year and it is often broken into quartley and monthly budgets

how do organizations create budgets?

usually do a combination of top down budgeting or self imposed