Chapter 8 - Master budgeting. After studying Chapter 8, you should be able to: Understand why organizations budget and the processes they use to create budgets; prepare a sales budget, including a schedule of expected cash collections; prepare a production budget; prepare a direct materials budget, including a schedule of expected cash disbursements for purchases of materials;. | Master Budgeting Chapter 8 The Basic Framework of Budgeting A budget is a detailed quantitative plan for acquiring and using financial and other resources over a specified forthcoming time period. The act of preparing a budget is called budgeting. The use of budgets to control an organization’s activities is known as budgetary control. Difference Between Planning and Control Planning – involves developing objectives and preparing various budgets to achieve those objectives. Control – involves the steps taken by management to increase the likelihood that the objectives set down while planning are attained and that all parts of the organization are working together toward that goal. Advantages of Budgeting Advantages Define goals and objectives Uncover potential bottlenecks Coordinate activities Communicate plans Means of allocating resources Responsibility Accounting Managers should be held responsible for those items - and only those items - that they can actually control to a . | Master Budgeting Chapter 8 The Basic Framework of Budgeting A budget is a detailed quantitative plan for acquiring and using financial and other resources over a specified forthcoming time period. The act of preparing a budget is called budgeting. The use of budgets to control an organization’s activities is known as budgetary control. Difference Between Planning and Control Planning – involves developing objectives and preparing various budgets to achieve those objectives. Control – involves the steps taken by management to increase the likelihood that the objectives set down while planning are attained and that all parts of the organization are working together toward that goal. Advantages of Budgeting Advantages Define goals and objectives Uncover potential bottlenecks Coordinate activities Communicate plans Means of allocating resources Responsibility Accounting Managers should be held responsible for those items - and only those items - that they can actually control to a significant extent. Responsibility accounting enables organizations to react quickly to deviations from their plans and to learn from feedback. Choosing the Budget Period Operating Budget 2014 2015 2016 2017 Operating budgets ordinarily cover a one-year period corresponding to a company’s fiscal year. Many companies divide their annual budget into four quarters. A continuous budget is a 12-month budget that rolls forward one month (or quarter) as the current month (or quarter) is completed. Self-Imposed Budget A self-imposed budget or participative budget is a budget that is prepared with the full cooperation and participation of managers at all levels. Advantages of Self-Imposed Budgets Individuals at all levels of the organization are viewed as members of the team whose judgments are valued by top management. Budget estimates prepared by front-line managers are often more accurate than estimates prepared by top managers. Motivation is generally higher when individuals participate in .
