Budgetary Planning and Control Ppt
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Transcript of Budgetary Planning and Control Ppt
![Page 1: Budgetary Planning and Control Ppt](https://reader035.fdocuments.us/reader035/viewer/2022081412/5450da53af7959fb088b4fb5/html5/thumbnails/1.jpg)
Profit Planning
UAA – ACCT 202 Principles of Managerial Accounting
Dr. Fred Barbee
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PlanningPlanning
DecisionMaking
DecisionMaking
Organizing & DirectingOrganizing & Directing
ControllingControlling
EvaluatingEvaluating
The Work of Management
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PlanningPlanning
DecisionMaking
DecisionMaking
Organizing & DirectingOrganizing & Directing
ControllingControlling
EvaluatingEvaluating
The Work of Management
Initiate LT & ST PlansInitiate LT & ST Plans
Implement Plans
Implement Plans
Measure Performanc
e
Measure Performanc
e
Evaluate Performanc
e
Evaluate Performanc
e
DecisionMaking
DecisionMaking
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PlanningPlanning
DecisionMaking
DecisionMaking
Organizing & DirectingOrganizing & Directing
ControllingControlling
EvaluatingEvaluating
The Work of Management
Initiate LT & ST PlansInitiate LT & ST Plans
Implement Plans
Implement Plans
Measure Performanc
e
Measure Performanc
e
Evaluate Performanc
e
Evaluate Performanc
e
DecisionMaking
DecisionMaking
Planning
Planning -- involves developing
objectives and preparing various
budgets to achieve these objectives.
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PlanningPlanning
DecisionMaking
DecisionMaking
Organizing & DirectingOrganizing & Directing
ControllingControlling
EvaluatingEvaluating
The Work of Management
Initiate LT & ST PlansInitiate LT & ST Plans
Implement Plans
Implement Plans
Measure Performanc
e
Measure Performanc
e
Evaluate Performanc
e
Evaluate Performanc
e
DecisionMaking
DecisionMaking
Control
Control involves the steps taken by management that attempt to ensure the objectives are attained.
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DecisionMaking
DecisionMaking
Measure Performanc
e
Measure Performanc
e
Implement Plans
Implement Plans
Initiate LT & ST PlansInitiate LT & ST Plans
Evaluate Performanc
e
Evaluate Performanc
e
The Work of Management
Budgets
Initiate LT & ST PlansInitiate LT & ST Plans
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Evaluate Performanc
e
Evaluate Performanc
e
DecisionMaking
DecisionMaking
PlanningPlanning
DecisionMaking
DecisionMaking
Evaluate Performanc
e
Evaluate Performanc
e
Measure Performanc
e
Measure Performanc
e
The Work of Management
Implement Plans
Implement Plans
Implement Plans
Implement Plans
“Through” the budget
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Evaluate Performanc
e
Evaluate Performanc
e
DecisionMaking
DecisionMaking
PlanningPlanning
DecisionMaking
DecisionMaking
Evaluate Performanc
e
Evaluate Performanc
e
Measure Performanc
e
Measure Performanc
e
The Work of Management
Implement Plans
Implement Plans
Measure Performanc
e
Measure Performanc
e
“According” to the Budget
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PlanningPlanning
DecisionMaking
DecisionMaking
Organizing & DirectingOrganizing & Directing
ControllingControlling
EvaluatingEvaluating
The Work of Management
Initiate LT & ST PlansInitiate LT & ST Plans
Implement Plans
Implement Plans
Measure Performanc
e
Measure Performanc
e
Evaluate Performanc
e
Evaluate Performanc
e
DecisionMaking
DecisionMaking
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The Basic Framework of Budgeting
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A Budget is . . .
• A quantitative expression of a plan of action.
• A detailed plan for acquiring and using financial and other resources over a specified time period (text).
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NowNow
5 Years5 Years
1 Year1 Year
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Short-Run Vs. Long-Run Budgets
Strategic Planning• Selecting overall objectives.• Choosing what markets to be in.• Selecting what products to produce.• Determining the price/quality mix.• Deciding which technologies to use.
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Strategic Planning
Long-run Budgets (more than one year)Forecasts of large asset acquisitions.
Financing plans.Research and development plans.
Short-Run Vs. Long-Run Budgets
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Strategic Planning
Long-run Budgets
Short-run Budgets (1 year or less)Quantities to produce.
Quantities to sell.Supplies acquisitions.
Short-Run Vs. Long-Run Budgets
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Imposed
Participatory
Vs.
Budgets . . .
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Imposed Budgets VersusParticipatory Budgets
Imposed Budgets
Participatory Budgets
Continuum
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Participatory Budgets
Right to comment before implementation
Ultimate right to set budgets
Continuum
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Imposed Budgets VersusParticipatory Budgets
Imposed Budgets
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• In start-up organizations
• In extremely small businesses
• In times of economic crises
• When operating managers lack budgetary skills or perspective.
Best Time to Use . . .
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• Requires less time.
• Utilize top management’s knowledge of overall resource availability.
• Increase probability that the firm’s strategic plans are incorporated.
Advantages . . .
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Disadvantages . . .
• Reduce feeling of teamwork.
• Dissatisfaction and low morale.
• Limited acceptance of stated goals and objectives.
• May stifle initiative of lower level managers.
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Imposed Budgets VersusParticipatory Budgets
Participatory Budgets
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Best Time to Use . . .
• In well-established organizations.
• In extremely large businesses.
• In times of economic affluence.
• When operating managers have strong budgetary skills and perspectives.
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Advantages . . .
• Obtain information from those persons most familiar with the needs and constraints of the organizational units.
• Leads to better morale and higher motivation.
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Advantages . . .
• Integrates knowledge that is diffused among various levels of management.
• Provides a means to develop fiscal responsibility and budgetary skills of employees.
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Advantages . . .
• Develop a high degree of acceptance of and commitment to organizational goals and objectives by operating management.
• Are generally more realistic.
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Disadvantages . . .
• Require significantly more time.
• May motivate managers to introduce “slack” into the budget.
• May support “empire building” by subordinates.
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Advantages of Budgeting
Advantages
Define goaland objectives
Uncover potentialbottlenecks
Coordinateactivities
Communicatingplans
Think about andplan for the future
Means of allocatingresources
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The Master Budget
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The Master Budget
Sales Budget
Production Budget
DL Budget
Cash Budget
Pro Forma Bal. Sht
EI Budget
DM Budget
Pro Forma Inc. Stmt
Overhead Budget
Sales Forecast
Capital Budget
Pro Forma SCF
S&A Exp Budget
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The Master Budget
The Text Example Hampton Freeze
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Tom Willis is the majority stockholder and chief executive officer of Hampton Freeze, Inc., a company he started in 2001. The company makes premium popsicles using only natural ingredients and featuring exotic flavors such as tangy tangerine and minty mango. The company’s business is highly seasonal, with most of the sales occurring in spring and summer.
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In 2002, the company’s second year of operations, a major cash crunch in the first and second quarters almost forced the company into bankruptcy. In spite of this cash crunch, 2002 turned out to be overall a very successful year in terms of both cash flow and net income.
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With the full backing of Tom Wills, Larry Giano set out to create a master budget for the company for the year 2003.
In his planning for the budgeting process, Larry drew up the following list of documents that would be a part of the master budget.
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1
2
3 4 5
6 7
8
9 10
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The Sales Budget
A budget showing the number of units, sales
price and total sales for each quarter (or
month).
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Research into the history of cash collections at Hampton Freeze indicated that
– 70% of sales are collected in the quarter in which the sale is made and
– the remaining 30% are collected in the following quarter.
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The Production Budget
A budget showing the number of units that
must be produced during each budget period to
meet sales needs and to provide for the desired
ending inventory.
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Finished Units to be
Produced
Expected Sales in Units
Desired EI of
Finished Units
BI of Finished
Units= + -
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• Hampton Freeze would like the ending inventory of finished goods to be equal to 20% of next quarter’s sales.
• The company has 2,000 units of beginning inventory.
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1.Finished units to be produced
2.Equals expected sales in units
3.Plus Desired EI of finished units.
4.Less BI of finished units.
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Desired Ending Inventory of
Finished Goods equals 20% of next
quarter’s sales.
Ending Inventory for one quarter equals Beginning Inventory for next
quarter.
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Notice how inventories are accounted for on the spreadsheet.
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The Direct Materials Purchases Budget
A budget showing the raw materials that must
be purchased to fulfill the production budget and to
provide for adequate inventories.
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Required Purchases
of Raw Materials
Amount Required
for Productio
n
Desired EI of Raw
Materials
BI of Raw
Materials
= + -
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• Hampton Freeze has established a policy of maintaining RM equal to 10% of the amount required for production in the subsequent quarter.
• In the first quarter the company plans on producing 14,000 units (from the production budget)
• Each unit requires parts costing $0.20.
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• To prepare the Schedule of Expected Cash Disbursements for Materials, Hampton’s policy is to
– Pay for 50% of purchases in the quarter in which the purchase is made, and
– Pay the remaining 50% in the following quarter.
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1.Required purchases of Direct
Materials
2.Equals amount
required for production.
3.Plus Desired EI of raw materials.
4.Less BI of raw materials.
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The Direct Labor Budget
A budget showing the direct labor hours (and
total amount) needed to produce the number of
units specified in the production budget.
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• Each case produced requires 0.4 direct labor hour.
• Each hour costs $15
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The Direct Labor Budget
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The MOH Budget
A budget showing all costs of production other than direct materials and
direct labor.
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The MOH Budget
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The Ending Finished Goods Inventory
Budget
A budget showing the carrying cost of the
unsold units remaining in inventory.
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The Ending FG Inventory Budget
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The Selling and Administrative
Expense Budget
A budget showing expenses for areas other
than manufacturing.
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The S&A Expense Budget
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The Cash Budget
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The Budgeted (Pro-Forma) Income
Statement
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The Budgeted Balance Sheet
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