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Management accounting: Information for creating and managing value (4/e): Chapter 9 - Kim Langfield-Smith, Helen Thorne

Chapter 9 - Budgeting systems. In this chapter, students will be able to understand: strategic planning and budgeting systems, purposes of budgeting, responsibility accounting, the annual budget: a planning tool,. | Chapter 9 Budgeting systems 9- Strategic planning and budgeting systems A budget A detailed plan summarising the financial consequences of an organisation’s operating activities for a future time period A financial model that summarises future operations A core component of an organisation’s planning and control system A critical way of providing information to managers to help them manage resources and create value Often has a time horizon of a year continued 9- Strategic planning and budgeting systems Strategic planning is long-term planning usually undertaken by senior managers Decisions about corporate strategy the type of businesses and markets that the organisation operates in how those businesses and activities will be financed Decisions about business strategy How each of the businesses within the larger organisation competes within its chosen market A time horizon of three or more years Formulated in broad terms in far less detail than budgets Has implications for the formulation of budgets 9- Purposes of budgeting Planning To quantify a plan of action Facilitating communication and coordination Provides a formal mechanism to enable communication and coordination Allocating resources Provides a forum for evaluating alternative uses for resources among competing users continued 9- Purposes of budgeting Controlling profit and operations The budget can serve as a benchmark to allow comparison with actual results Evaluating performance and providing incentives Comparing actual result with budget provides a basis for evaluation of the performance of individuals, departments or the entire company This can be linked to formal incentives, such as cash rewards or profit sharing 9- Responsibility accounting Budgets are prepared along responsibility accounting lines Responsibility accounting The practice of holding managers responsible for the activities and performance of their area of the business Managers of various departments Develop their | Chapter 9 Budgeting systems 9- Strategic planning and budgeting systems A budget A detailed plan summarising the financial consequences of an organisation’s operating activities for a future time period A financial model that summarises future operations A core component of an organisation’s planning and control system A critical way of providing information to managers to help them manage resources and create value Often has a time horizon of a year continued 9- Strategic planning and budgeting systems Strategic planning is long-term planning usually undertaken by senior managers Decisions about corporate strategy the type of businesses and markets that the organisation operates in how those businesses and activities will be financed Decisions about business strategy How each of the businesses within the larger organisation competes within its chosen market A time horizon of three or more years Formulated in broad terms in far less detail than budgets Has implications for .