WEEK 8
BUDGETING
What is a budget
A quantifiedplanfor acquiring and using resources over a period
Used as both a planning andcontroltool
WhyBudget
Planning Purposes
Forces managers to thinkahead
cletsobjectives
Helps coordinate activities
Highlightsfutureproblems bottlenecks
ControlPurposes
Provides benchmarks
Allowsperformance evaluation
Supports responsibility accounting
Responsibility Accounting
Managers should be evaluatedonlyon itemstheycan control
Avoidsunfairperformance measurement
Types ofBudgets
1 Participative Bottomup Budgeting
2 Top Down Budgeting
3 Zero BasedBudgeting
4 Static Budget
5 FlexibleBudgetadjustsforactualactivity
, 1 Participative Budgeting
Benefits
Higheraccuracy frontlineright
Greatermotivation
Ownership ofgoals
Fewercomplaints about unrealisticbudgets
Potentialissues
Budgetaryslack managers underestimateability
Master Budget Components OrderMatters
1 SalesBudget comerstone
Expectedsalesin unitsanddollars
Everythingflowsfromthis
2 ProductionBudget
Requiredproduction Sales desiredendinginventory beginninginventory
3 DirectMaterials Budget
Materials topurchase productionneeds desiredendinginventory beginninginventory
4 DirectLabourBudget
Labourhours Unitsproduced Hours unit
Totalcost Hours x Rate hr
5 Manufacturing OverheadBudget
VariableOH FixedOH
Identifynoncashitems likedepreciation
6 Ending FinishedGoodsInventoryBudget
Uses unitproduct
cost DM DL MOH
BUDGETING
What is a budget
A quantifiedplanfor acquiring and using resources over a period
Used as both a planning andcontroltool
WhyBudget
Planning Purposes
Forces managers to thinkahead
cletsobjectives
Helps coordinate activities
Highlightsfutureproblems bottlenecks
ControlPurposes
Provides benchmarks
Allowsperformance evaluation
Supports responsibility accounting
Responsibility Accounting
Managers should be evaluatedonlyon itemstheycan control
Avoidsunfairperformance measurement
Types ofBudgets
1 Participative Bottomup Budgeting
2 Top Down Budgeting
3 Zero BasedBudgeting
4 Static Budget
5 FlexibleBudgetadjustsforactualactivity
, 1 Participative Budgeting
Benefits
Higheraccuracy frontlineright
Greatermotivation
Ownership ofgoals
Fewercomplaints about unrealisticbudgets
Potentialissues
Budgetaryslack managers underestimateability
Master Budget Components OrderMatters
1 SalesBudget comerstone
Expectedsalesin unitsanddollars
Everythingflowsfromthis
2 ProductionBudget
Requiredproduction Sales desiredendinginventory beginninginventory
3 DirectMaterials Budget
Materials topurchase productionneeds desiredendinginventory beginninginventory
4 DirectLabourBudget
Labourhours Unitsproduced Hours unit
Totalcost Hours x Rate hr
5 Manufacturing OverheadBudget
VariableOH FixedOH
Identifynoncashitems likedepreciation
6 Ending FinishedGoodsInventoryBudget
Uses unitproduct
cost DM DL MOH
