1. The Essentials of effective budgeting.................................................................2
2. Components of the master budget.....................................................................3
3. Prepare a cash budget....................................................................................... 5
4. prepare a budgeted statement of financial position...........................................6
5. Budgeting principles to non-manufacturing companies.....................................6
6. Exercises............................................................................................................ 6
1. Budgetary control and statistic budget reports................................................10
2. Flexible budget reports..................................................................................... 10
2.1. Develop a flexible budget...........................................................................10
3. Exercises.......................................................................................................... 11
1. Standard costs.................................................................................................. 14
1.1. Advantages................................................................................................ 14
1.2. Distinguishing between standards and budgets.........................................14
1.3. Setting standard costs................................................................................ 14
2. Direct materials variances................................................................................ 14
2.1. Analyzing and reporting variances.............................................................14
2.2. Causes........................................................................................................ 15
3. Direct labor and manufacturing overhead variances.......................................15
3.1. Direct labor variances................................................................................ 15
3.2. Causes........................................................................................................ 15
3.3. Manufacturing overhead variances............................................................15
4. Exercises.......................................................................................................... 16
1. Introduction...................................................................................................... 18
2. Capital budgeting............................................................................................. 18
2.1. Cash payback............................................................................................. 18
2.2. Net present value (NPV)............................................................................. 19
2.3. Internal rate of return................................................................................. 19
3. Exercises.......................................................................................................... 19
,CH9 – Budgetary planning
1. The Essentials of effective budgeting
Budget = formal written statement of management’s plans for a specified
future time period, expressed in financial terms based on the information
accountants can give
= a quantitative expression of a plan of action
Benefits:
- All levels of management need to plan ahead
- It gives definite objectives to evaluate performance at each level of
performance
- Creates early warning system for potential problems
- It makes the coordination of activities easier within business
- Greater management awareness
- Motivates personnel to achieve the goals
Essentials of effective budgeting
- Length of the budget
® Not necessarily 1 year
® Should be long enough to provide a realistic goal
- Budgeting process
® First there needs to be gathered information from the accounting
department
® Expected sales, general economic conditions, industry trends, …
- Human behaviors
® Effect the budget
® A good budget can inspire managers to reach higher levels of
performance
® Budgetary slack = when a manager intentionally underestimate
budgeted revenues or overestimate budgeted expenses
- Long-range planning
® budgeting
® = long range planning encompasses a period of at least 5 years
® Budgeting is on a shorter period of time, frequently a year
, 2. Components of the master budget
- Sales budget
® Prepared first
® Difficult: represents best estimate of sales revenue for budget
period
® Other budgets depend on the sale budget
Expected unit sales
*unit selling price
= total sales
- Production budget
® Shows the number of units of a product we need to produce to
meet the anticipated sales demand
Expected unit sales
+ desired ending
inventory
= total required units
- beginning inventory
= required production
units
- Direct materials budget
® Shows quantity and costs of DM we need to purchase
Units we will produce
* direct materials per unit
= Total kgs needed
+ desired ending inventory
DM
= total materials required
- beginning inventory DM
= DM we need to purchase
* cost per kg
= total cost of DM
purchases
- Direct labor budget
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