Managerial Accounting: An Introduction To Concepts, Methods, And Uses

1
Managerial Accounting An Introduction To
Concepts, Methods, And Uses

• Chapter 9
• Profit Planning and Budgeting

Maher, Stickney and Weil
2
Learning Objectives (Slide 1 of 2)

• Explain the use of a budget as a tool for
  planning and performance evaluation.
• Explain how a budget can affect employee
  motivation.
• Compare the four types of responsibility centers.
• Describe the master budget.

3
Learning Objectives (Slide 2 of 2)

• Explain the difference between a flexible budget
  and master budget.
• Describe ethical dilemmas in budgeting.
• List the components of a comprehensive master
  budget. (Appendix 10.1)
• Describe an incentive model for accurate
  reporting. (Appendix 10.2)

4
Organizational Plan

• Define its three parts

5
Describe the Master Budget
6
Interaction in Developing the Master Budget
Individual
Organizational
Organizational Goals
Individual Goals Values
Long-Range Strategic Plan
Anticipated Conditions for Budget Period
Individ. Beliefs Expectations
Master Budget
Strategic Evaluation
Periodic Performance Evaluation
Actual Period Reported Results
7
Employee Participation in Developing Budgets

• Define Participative budgeting

8
Performance Evaluation

• Budgets provide estimates of expected performance
• Comparing budgeted with actual results provides a
  basis for evaluating performance
• Budgets must be prepared for individual
  responsibility centers in order to use them to
  evaluate performance

9
Responsibility Centers (Slide 1 of 2)

• Define A responsibility center

10
Responsibility Centers (Slide 2 of 2)

• Responsibility centers can be classified as
  follows (continued)
• Profit centers - mgmt is responsible for both
  revenues and costs
• Investment centers - mgmt is responsible for
  revenues, costs, and assets

11
Discuss Flexible Budgets

• Shows the expected relation between costs and
  volumes
• Has two components, what are they?

12
Explain Cost Hierarchies
13
Forecasting Sales

• Developing the master budget starts with
  forecasting sales
• Various methods and sources used to obtain sales
  forecasts include
• Sales staff
• Market research
• Delphi technique
• Trend analysis
• Econometric Models

14
Production Budget (Slide 1 of 3)

• The production budget is based on the sales
  budget and estimates of beginning and desired
  ending inventories
• Production is calculated as follows
• Number of Units to Be Sold
• Units in Ending Inventory
• -Units in Beginning Inventory
• Units to Be Produced

15
Production Budget (Slide 2 of 3)

• After determining the number of units to be
  produced, we can budget for the following
• Direct materials - traceable to units produced
  and almost always a variable cost
• Direct labor - traceable to units produced
  usually a variable cost but could be a fixed cost

16
Production Budget (Slide 3 of 3)

• We assume direct labor is a variable cost in this
  chapter
• Manufacturing overhead - typically has both
  variable and fixed components variable overhead
  varies with units produced, fixed overhead gives
  a firm production capacity

17
Describe the Marketing and Administrative Budgets
18
Discretionary Fixed Costs

• Many fixed costs are really discretionary costs
• They are budgeted as fixed costs but if, for
  example, the economic conditions look bad, these
  costs can be reduced
• Examples maintenance, advertising
• Discretionary fixed costs should be distinguished
  from committed fixed costs, like rent on a
  factory building, which are required to run the
  firm

19
Comment on the Budgeted Income Statement
20
Discuss the Need for Accurate Forecasts
21
Using the Master Budget

• What does the master budget include?

22
Compare Flexible and Master Budgets
23
Budgeting in Nonprofit organizations

• The master budget is important in nonprofit
  organizations
• Used as a basis for authorizing the expenditure
  of funds
• In governmental units, the budget is a legal
  authorization for expenditure
• Penalties for exceeding authorized expenditures
  can be severe

24
Review Ethical Issues in Budgeting
25
Review Ethical Issues in Budgeting
26

• If you have any comments or suggestions
  concerning this PowerPoint Presentation for
  Managerial Accounting, An Introduction To
  Concepts, Methods, And Uses, please contact
• Dr. Michael Blue, CFE, CPA, CMA
• blue_at_bloomu.edu
• Bloomsburg University of Pennsylvania