Budgeting notes ( Management accounting)

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