Topic 3 Budgeting Process 2010 SM

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Management and Cost Accounting, 6thedition, ISBN 1-84480-028-8 2004 Colin Drury

TOPIC 3 - BD!"TIN!

#"$DIN!%

Ch% 10 &$N$!"&"NT $CCONTIN! 'O# BSIN"SS

THIRD EDITION, CO(IN D##)

*Bud+etin+ $dditionl note. on &oodle


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10.1

2000 Colin Drury

Fig 15.1 An overview o !"e

#l$nning #ro%e&&

1. I'en!iy !"e o()e%!ive& o !"e

org$ni*$!ion.

2. I'en!iy #o!en!i$l &!r$!egie&.

+. Ev$lu$!e $l!ern$!ive

&!r$!egi% o#!ion&.

. -ele%! %our&e o $%!ion.

5. I#leen! !"e long/!er

#l$n in !"e or o !"e $nnu$l

(u'ge!.

. oni!or $%!u$l re&ul!&.

. Reon' !o 'ivergen%ie&

ro #l$n.


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3"y 'o we #ro'u%e (u'ge!&4

1. To $i' !"eplanning o $%!u$l o#er$!ion&

(y or%ing $n$ger& !o %on&i'er "ow %on'i!ion& ig"!

%"$nge $n' w"$! &!e#& &"oul' (e !$6en now.

(y en%our$ging $n$ger& !o %on&i'er #ro(le& (eore !"ey $ri&e.

2. To co-ordinate !"e $%!ivi!ie& o !"e org$ni*$!ion

(y %o#elling $n$ger& !o e7$ine rel$!ion&"i#&

(e!ween !"eir own o#er$!ion $n' !"o&e o o!"er

'e#$r!en!&.


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10.2(

2000 Colin Drury

3"y 'o we #ro'u%e (u'ge!&4

+. To communicate #l$n& !o v$riou& reon&i(ili!y %en!re $n$ger&

everyone in !"e org$ni*$!ion &"oul' "$ve $ %le$r

un'er&!$n'ing o !"e #$r! !"ey $re e7#e%!e' !o #l$y in

$%"ieving !"e $nnu$l (u'ge!.

(y en&uring $##ro#ri$!e in'ivi'u$l& $re $'e

$%%oun!$(le or i#leen!ing !"e (u'ge!.

. To motivate $n$ger& !o &!rive !o $%"ieve !"e (u'ge! go$l&

(y o%u&ing on #$r!i%i#$!ion

(y #rovi'ing $ %"$llenge8!$rge!.


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5. To control $%!ivi!ie&

(y %o#$ri&on o $%!u$l wi!" (u'ge! 9$!!en!ion 'ire%!ing8$n$geen! (y e7%e#!ion:.

. To evaluate !"e #eror$n%e o $n$ger&

(y #rovi'ing $ e$n& o inoring $n$ger& o "ow well !"ey $re #eroring in ee!ing !$rge!& !"ey

"$ve #reviou&ly &e!.


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10.+

2000 Colin Drury

-!$ge& in !"e (u'ge!ing #ro%e&&

1.Couni%$!e 'e!$il& o (u'ge! #oli%y $n' gui'eline& !o !"o&e #eo#le reon&i(le or #re#$ring !"e (u'ge!.

2. De!erine !"e $%!or !"$! re&!ri%!& ou!#u!.

+. ;re#$r$!ion o !"e &$le& (u'ge!.

. Ini!i$l #re#$r$!ion o (u'ge!&.

5. Nego!i$!ion o (u'ge!& wi!" "ig"er $n$geen!. 9-ee igure on &li'e 15.:

. Co/or'in$!ion $n' review o (u'ge!&.

. Fin$l $%%e#!$n%e o (u'ge!&.


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2000 Colin Drury

Fig 10.2 An illu&!r$!ion o (u'ge!& oving u# !"e org$ni*$!ion$l "ier$r%"y.


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&nu/turin+ "nironent

Bud+et Proe..

;re#$re $ $&!er =u'ge!8 Fore%$&! 9&ee #2>:? To 'o &o #re#$re !"e ollowing =u'ge!&

E7$#le&

? T$!er 9($&i% %$&" low > ; @ > =- ore%$&!:? T"e En!er#ri&e Co#$ny 9#25: ull $&!er =u'ge!:

? =u'ge! #re#$r$!ion e7$#le 9-;E:

10.5

-$le&;ro'u%!ionDire%! $!eri$l B&$geDire%! $!eri$l ;ur%"$&e

Dire%! $(ourF$%!ory O8H-elling $n' A'inC$&" =u'ge!


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A%!ivi!y/($&e' (u'ge!ing 9A==:

Conven!ion$l (u'ge!ing i& in$##ro#ri$!e or !"o&e $%!ivi!ie& w"ere !"e %on&u#!ion o re&our%e& 'oe& no! v$ry #ro#or!ion$!ely wi!" !"e

volue o !"e in$l ou!#u! o #ro'u%!& or &ervi%e&.

For &u##or! $%!ivi!ie& %onven!ion$l in%reen!$l (u'ge!& erely

&erve $& $u!"ori*$!ion level& or %er!$in level& o en'ing.

In%reen!$l (u'ge!ing re&ul!& in !"e %o&! o non/uni! level $%!ivi!ie&

(e%oing i7e'.

A== $i& !o $u!"ori*e only !"e &u##ly o !"o&e re&our%e& !"$! $re

nee'e' !o #eror $%!ivi!ie& reuire' !o ee! (u'ge!e' #ro'u%!ion

$n' &$le& volue&.


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T"e A== #ro%e&& i& !"e rever&e o !"e A=C #ro%e&&

=u'ge!e' ou!#u! o %o&! o()e%!&

De!erine !"e ne%e&&$ry $%!ivi!ie&

De!erine !"e re&our%e& reuire' or !"e (u'ge! #erio'


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A== involve& !"e ollowing &!$ge&

1. E&!i$!e !"e #ro'u%!ion $n' &$le& volue (y in'ivi'u$l #ro'u%!& $n'%u&!oer&.

2. E&!i$!e !"e 'e$n' or org$ni*$!ion$l $%!ivi!ie&.

9e.g.;ro%e&& 5,000 %u&!oer& or'er& or !"e %u&!oer or'er

#ro%e&&ing $%!ivi!y:

+. De!erine !"e re&our%e& !"$! $re reuire' !o #eror org$ni*$!ion$l

$%!ivi!ie&.

9e.g.0.5 "our& #er or'er 5,000 0.5 "our&

2,500 l$(our "our& or !"e %u&!oer #ro%e&&ing$%!ivi!y u&! (e &u##lie':


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2000 Colin Drury

. E&!i$!e or e$%" re&our%e !"e u$n!i!y !"$! u&! (e &u##lie' !o ee!

!"e 'e$n'.

9e.g.A&&ue $ &!e# %o&! un%!ion wi!" e$%"

#er&on e#loye' %on!r$%!e' !o wor6 1,500 "our&

#er ye$r &o !"$! u$n!i!y o re&our%e& reuire'

2,50081,500 1. #er&on& e$ning !"$! 2

#er&on& u&! (e e#loye':

5.T$6e $%!ion !o $')u&! !"e %$#$%i!y o re&our%e& !o $!%" !"e #ro)e%!e'

&u##ly.

9e.g I + #er&on& $re #re&en!ly e#loye' on !"e

$%!ivi!y re&our%e& u&! (e re'u%e',or re'e#loye',(y one #er&on:


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10.'

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;erio'i%$lly $%!u$l re&ul!& &"oul' (e %o#$re' wi!" $n $')u&!e' 9le7i(le:

(u'ge!.

Example=u'ge!e' $%!ivi!y or #ro%e&&ing or'er& 2,


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2000 Colin Drury

A(ove re#re&en! %oi!!e' re&our%e& (u! or le7i(le re&our%e&9e.g.oi%e &u##lie&: re&our%e& &u##lie' %$n (e $!%"e' e7$%!ly !o

re&our%e& 'e$n'e'.

-ee E7"i(i! 10.1 or $n illu&!r$!ion o $n $%!ivi!y/($&e' (u'ge! or $n

or'er #ro%e&&ing $%!ivi!y.


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2000 Colin Drury

E7"i(i! 10.1 A%!ivi!y/($&e' (u'ge! or $n or'er re%eiving #ro%e&&

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Topic 3 Budgeting Process 2010 SM

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