Profit Planning

1
Profit Planning
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The Basic Framework of Budgeting
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Planning and Control

• Planning -- involves developing objectives and
  preparing various budgets to achieve these
  objectives.

• Control -- involves the steps taken by management
  that attempt to ensure the objectives are
  attained.

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Advantages of Budgeting
Define goal and objectives
Communicating plans
Think about and plan for the future
Advantages
Means of allocating resources
Coordinate activities
Uncover potential bottlenecks
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Responsibility Accounting

• Managers should be held responsible for those
  items and only those items thatthe manager
  can actually controlto a significant extent.

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Choosing the Budget Period
Operating Budget
1999
2000
2001
2002
The annual operating budget may be divided into
quarterly or monthly budgets.
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Choosing the Budget Period
Continuous or Perpetual Budget
1999
2000
2001
2002
This budget is usually a twelve-month budget
that rolls forward one month as the current
month is completed.
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Participative Budget System
Flow of Budget Data
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The Budget Committee

• A standing committee responsible for
• overall policy matters relating to the budget
• coordinating the preparation of the budget

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Zero-Base Budgeting

• Managers are required to justify all budgeted
  expenditures, not just changes in the budget from
  the previous year. The baseline is zero rather
  than last years budget.