Chapter 8: Managerial Accounting

A quantitative plan for acquiring and using resources over a specified period of time
Developing goals and preparing various budgets to achieve those goals
Steps taken by management to increase the likelihood that all parts of the organization are working together to achieve the goals set down at the planning stage
Advantages of Budgeting
1. Communicate management’s plans throughout the organization
2. Forces managers to think about and plan for the future
3. Provides means of allocating resources to those parts of the organization where they can be used most effectively
4. Can uncover potential bottlenecks before they occur
5. Budgets coordinate the activities of the entire organization by integrating plans of its various parts
6. Define goals and objectives that can serve as benchmarks for evaluating subsequent performance
Responsibility Accounting
Manager should be held responsible for those items and only those items that the manager can actually control to a significant extent
Continuous/ Perpetual Budget
12 month budget that rolls forward one month (or quarter) as the current month (or quarter) is completed
Self Imposed/ Participative Budget
A budget that is prepared with full cooperation and participation of managers at all levels.
* Not most commonly used
Budget Committee
Responsible for overall policy relating to the budget program and for coordinating the prep of the budget itself
*Approves final budget
Master Budget
Consists of a number of separate but interdependent budgets that formally lay out the company’s sales, production and financial goals
Sales Budget
First Step in the budgeting process
Detailed schedule showing the expected sales for the budget period
Cash Budget
A detailed plan showing how cash resources will be acquired or used
Production Budget
Lists the number of units that must be produced to satisfy sales needs to provide for the desired ending inventory
Production Budget Equation
Budget Unit Sales
+ Desired Ending Inventory
= Total Needs
– Beginning Inventory
= Required Production
Merchandise Purchase Budget
Shows the amount of goods to be purchased from suppliers during the period
Direct Materials Budget
Details the raw materials that must be purchased to fulfill the production budget and provide adequate inventories
Direct Materials Budget Equation
Raw Materials Needed to Meet the Production Schedule
+ Desired Ending Inventory of Raw Materials
= Total Raw Materials Needed
– Beginning Inventory of Raw Materials
= Raw Materials to be Purchased
Direct Labor Budget
Shows Direct Labor required to satisfy the production budget
Manufacturing Overhead Budget
Lists all costs of production other than direct materials and direct labor
Ending Finished Goods Inventory Budget
A budget showing the dollar amount of unsold finished goods inventory that will appear on the ending balance sheet
Selling and Administrative Expenses
Lists the budgeted expenses for areas other than manufacturing
Cash Budget 4 major sections
1. Receipt: Lists Cash inflows – financing
2. Disbursements: Cash payments
3. Cash excess or deficiency
4. Financing: Borrowing or repayments
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