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  • MS 06-04 Budgeting

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    A budget is a formal plan that covers all aspects of operations for a designated time period. It is a planning tool that is consistent with organizational goals and objectives. An effective budget has attributes like predictability, understandability, and reliability. Budgeting assists with communication, decision making, and self-evaluation. However, budgets can also reduce flexibility and focus too much on estimates. There are different types of budgets based on factors like scope, cost behavior, basis, and cost object. The budgeting process involves creating sales, production, materials, overhead, income statement, and cash budgets.

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    A budget is a formal plan that covers all aspects of operations for a designated time period. It is a planning tool that is consistent with organizational goals and objectives. An effective budget has attributes like predictability, understandability, and reliability. Budgeting assists with communication, decision making, and self-evaluation. However, budgets can also reduce flexibility and focus too much on estimates. There are different types of budgets based on factors like scope, cost behavior, basis, and cost object. The budgeting process involves creating sales, production, materials, overhead, income statement, and cash budgets.

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    13 views3 pages

    MS 06-04 Budgeting

    Uploaded by

    xernathan
    A budget is a formal plan that covers all aspects of operations for a designated time period. It is a planning tool that is consistent with organizational goals and objectives. An effective budget has attributes like predictability, understandability, and reliability. Budgeting assists with communication, decision making, and self-evaluation. However, budgets can also reduce flexibility and focus too much on estimates. There are different types of budgets based on factors like scope, cost behavior, basis, and cost object. The budgeting process involves creating sales, production, materials, overhead, income statement, and cash budgets.

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    MS 06-04: BUDGETING

    Definition
    A formal expression of plans, goals, and objectives of the management that covers all aspects of operations for a
    designated time period.
    - Planning tool “concrete plan” – consistent w/ goals and objectives of the company

    Plan/Budget As to Time Period Budgeting Budget


    Strategic Plan Long-term (Process) (Output)
    Tactical Plan Mid 1 year to Long-term Role of Budgeting in the Management Process
    Operational Plan Short-term Planning Organizing Controlling

    Budgeting vs. Forecasting


    • Creating the • Conduct of • Actual vs.
    budget actual Standard
    Planning for a result and Predicting the outcome of • Establishing operations • Deciding
    controlling to accomplish events predetermined • Cost corrective
    the result unit costs accounting actions

    Attributes of Effective Budgeting Predictive Value Assist Communication


    An effective budget must have the following attributes Enhances
    Reliable and Timely
    Understandability
    Advantages and Disadvantages of Budgeting
    Advantages Disadvantages
    • Links objectives and resources • Tend to reward employees with modest goals while
    • Promotes communication among employees penalizing those ambitious goals that were not able to
    • Assists in analytical techniques meet
    • Assist in decision making • Emphasis on judgment, estimates and subjectivity
    • Provides measure for self-evaluation • Managers may consider that budgets redirect their
    flexibility to adjust to changing conditions
    • A budget does not consider quality and customer
    service

    Types of Budgets

    As to Scope As to Cost Behavior As to Basis As to Cost Object

    • Master Budget • Static Budget • Rolling Budget • Life-cycle Budget


    • Operations Budget • Flexible Budget • Zero-based Budget • Activity-based Budget
    • Financial Budget • Kaizen Budget • Responsibility Budget
    • Capital Budget
    The Budgeting Process

    4. Selling and
    2. Production 3. Materials, Labor, General 5. Budgeted Income
    1. Sales Forecast
    Budgets Overhead Budgets Administration Statement
    (SGA) Budgets

    8. RM, AP, and Cash 9. Cash


    6. Cash Receipts 7. WIP and FG 10. Budgeted
    Disbursement Disbursement
    Budgets Budgets Balance Sheet
    Budgets Budgets

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