After you have mastered the material in this chapter, you will be able to: Outline the steps associated with an effective system of management control, explain the benefits of adopting a formal budgeting process, explain the importance of recognising the behavioural aspects of budgeting,. | Chapter 10 Basic budgetary controls 10- Objectives Outline the steps associated with an effective system of management control. Explain the benefits of adopting a formal budgeting process. Explain the importance of recognising the behavioural aspects of budgeting. 10- Objectives (continued) Distinguish between operating budgets and financial budgets. Describe the method of preparation of a master budget. Explain the benefits of flexible budgeting and it’s use in performance reporting. 10- System of management Planning Objectives of the organisation can be achieved. Budgets assist planning. Organising Budgets show the resources required to achieve goals. 10- System of management (continued) Motivating Assists each member in the organisation in achieving their goals. Controlling Budgets are statements of desired performance and provide a means of control. 10- Formal budgeting Forces managers to do planning. Realistic performance targets. Basis for controlling what happens within the organisation. Helps coordinate the activities of the various centres that make up the business. Communication – managers exchange information on ideas, etc. Motivating tool – if the process involves staff. 10- Behavioral aspects of budgeting Employees can perceive it as a checking mechanism Involve users of the budget into its design and implementation Budgets are based on: discussions with employees projections based on trend analysis previous budgets short-term and long-term objectives present and future policies accounting data economic growth and cyclical factors. 10- Behavioural aspects of budgeting (continued) Increasing staff involvement should: assist in the coordinated planning facilitate better acceptance of short-term and long-term goals provide stronger commitment to achieve goals. 10- Operating and financial budgets Operating budgets are prepared for the following areas: Sales budget Purchase budget COGS budget Operating expense budget . | Chapter 10 Basic budgetary controls 10- Objectives Outline the steps associated with an effective system of management control. Explain the benefits of adopting a formal budgeting process. Explain the importance of recognising the behavioural aspects of budgeting. 10- Objectives (continued) Distinguish between operating budgets and financial budgets. Describe the method of preparation of a master budget. Explain the benefits of flexible budgeting and it’s use in performance reporting. 10- System of management Planning Objectives of the organisation can be achieved. Budgets assist planning. Organising Budgets show the resources required to achieve goals. 10- System of management (continued) Motivating Assists each member in the organisation in achieving their goals. Controlling Budgets are statements of desired performance and provide a means of control. 10- Formal budgeting Forces managers to do planning. Realistic performance targets. Basis for controlling what
