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A budget is an organization’s operation plan for a specified period; it identifies the resources and commitments required to fulfill the organization’s commitments required to fulfill the organization’s goals.
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a plan of operations; a basis for allocating resources; a communication and authorization device; a device for motivating and guiding implementation; a guideline for operations and gauge for controlling operations; a basis for performance evaluation
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A master budget is an organization’s operating and financing plans for a specified period
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What features has a successful budget? start learning
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the acceptance and support of the budget by all managers and employees; employees perceive budget as a planning and coordinating tool to help them to do their jobs coordinating tool to help them to do their jobs; a motivating device; has technically correct and reasonably accurate numbers
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WHat is the budget processing? start learning
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The budget committee; The budget period; A continuous (rolling) budget; The budget guidelines
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External factors to consider start learning
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Changes in the labor market, raw material prices; Availability of raw materials or components and their prices; Industry’s outlook for the near term; Competitors’ actions
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Current sales levels and sales trends of the past few years; General economic and industry conditions; Competitors’ actions and operating plans; Pricing policies; Credit policies; Advertising and promotional activities; Unfilled back-orders
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sales budget shows expected sales in units at their expected selling prices; A firm prepares the sales budget for a period based on the forecasted sales level, production capacity for the budget period, and long term capacity for the budget period, and long-term plan and short-term goal of the firm
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What is production budget? start learning
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A firm prepares a production budget after determining the number of units that it expects to sell; A production budget is a plan for acquiring the resources needed to carry out the manufacturing operations to satisfy the expected sales and maintain the desired ending inventory
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What is direct material budget? start learning
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The information in the production budget becomes the basis for preparing several manufacturing-related budgets; A direct materials usage budget shows the direct materials required for production and their budgeted cost
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What is direct labor budget? start learning
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To prepare the direct labor budget, a company would use its production budget; The direct labor budget enables the personnel department to plan for hiring and repositioning of department to plan for hiring and repositioning of employees; A good labor budget helps the firm to avoid emergency hiring, prevent labor shortages, and reduce or eliminate the need to lay off workers
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What is factory overhead budget? start learning
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A factory overhead budget often includes all production costs other than direct materials and direct labor; Unlike direct materials and direct labor, manufacturing overhead costs include costs that vary in direct proportion with the units manufactured as well as costs that vary with either the kind of facilities the firm has or the way in which the firm carries out it operations
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What is cost of goods manufactured used for? start learning
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The income statement budget uses the cost of goods sold to determine the gross margin of the period, and the balance sheets includes the finished goods ending inventory it total assets
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What is total budget cost? start learning
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The cost of goods manufactured production cost and the cost of goods sold budget reports the total budgeted cost of units sold for a period
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A selling and general administrative expense budget start learning
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Delineates plans for all non- manufacturing expenses; This budget serves as a guideline for selling and administrative activities during the budget period
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A cash budget depicts effects of all budgeted activities on cash
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By preparing a cash budget, management can: start learning
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1. take steps to ensure having sufficient cash on hand to carry out the planned activities hand to carry out the planned activities; allow sufficient time to arrange for additional financing that may be needed during the budget period (and thus avoid high costs of emergency borrowing); plan for investments of excess cash on hand to earn the highest possible return
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A cash budget generally includes three major sections: start learning
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Cash available, Cash disbursements, Financing
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The budgeted income statement estimates the expected operating income from the budgeted operations; A budgeted income statement allows management a glimpse of the likely operating result upon completion of the budgeted operation
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Budgeting in Not-for-Profit Organizations start learning
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The master budget of a not-for-profit organization often becomes an authorization document for allowable expenditures and activities; In effect, the budget for a not-for-profit organization often becomes the source of both the power and limitations of the budgeted unit
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What is zero-based budgeting? start learning
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A zero-base budgeting process allows no activities or functions to be included in the activities or functions to be included in the budget unless managers can justify their need
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What is activity based budgeting? start learning
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It starts with the budgeted output and segregates costs required for the budgeted segregates costs required for the budgeted output into homogeneous activity cost pools
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What is Keizen budgeting? start learning
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Kaizen budgeting is a budgeting approach that explicitly demands continuous improvement and incorporates the expected improvements in the budget; A firm using kaizen budgeting prepares budgets based on the desired future operating processes for the budget period
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The advantages of using a highly achievable budget target start learning
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Increasing managers’ commitment to achieving the budget target 2. Maintaining managers’ confidence in the budget 2. Maintaining managers’ confidence in the budget 3. Decreasing organizational control cost 4. Reducing the risk that managers will engage in harmful earnings management practices or violate corporate ethical standards 5. Allowing effective and efficient managers greater operating flexibility
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In a top-down budgeting process, management prepares budgets for the entire organization (including those for lower-level operations) – this process is often referred to as authoritative budgeting
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In a bottom-up budgeting process, the people affected by the budget, including lower-level employees, are involved in the budget preparation process – this process is often referred to as participative budgeting
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