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The Master Budget
The Master Budget
Chapter 7
©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 7-1
Advantages of Budgets
Goals and
Budgets
objectives
©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 7-2
Advantages of Budgets
Compels
managers
to think Provides definite
ahead expectations that
are the best framework
to evaluate performance
Aids managers in
coordinating their efforts
©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 7-3
Types of Budgets
Continuous budget
©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 7-4
Strategic Plan
©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 7-5
Long-Range Plan
©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 7-6
Capital Budget
Long-range plans…
©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 7-7
Master Budget
Sales
The master budget
summarizes the Production
planned activities
of all subunits of Distribution
an organization.
Finance
©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 7-8
Continuous Budget
©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 7-9
Components of Master Budget
Operating budget
Financial/Cash
budget
©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 7 - 10
Steps in Preparing the
Master Budget
The principal steps in preparing
the master budget are:
1. Basic data
a. Sales budget
b. Cash collections from customers
c. Purchases budget
d. Disbursements for purchases
e. Operating expense budget
f. Disbursements for operating expenses
©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 7 - 11
Steps in Preparing the
Master Budget
1. Basic data
2. Operating budget
3. Financial/Cash budget
©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 7 - 12
Operating Budget
Purchases Disbursements
budget for purchases
©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 7 - 13
Cash Collections
©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 7 - 14
Purchases Budget
Beginning inventory +
Budgeted purchases –
Cost of goods sold
= Desired ending inventory
©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 7 - 15
Disbursements for Purchases
©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 7 - 16
Operating Expense Budget
©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 7 - 17
Operating Expense Budget
©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 7 - 18
Operating Expense Budget
Rent Depreciation
Insurance Salaries
©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 7 - 19
Operating Expense Disbursements
©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 7 - 20
Operating Expense Disbursements
©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 7 - 21
Budgeted Income Statement
©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 7 - 22
Financial/Cash Budget
©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 7 - 23
Financial/Cash Budget
©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 7 - 24
Financial/Cash Budget
©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 7 - 25
Financial/Cash Budget
©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 7 - 26
Financial/Cash Budget
©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 7 - 27
Financial/Cash Budget
©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 7 - 28
Financial/Cash Budget
©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 7 - 29
Budgeted Balance Sheet
©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 7 - 30
Sales Forecast
©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 7 - 31
Factors to Consider When
Forecasting Sales
Competitors’ actions
©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 7 - 32
Factors to Consider When
Forecasting Sales
©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 7 - 33
Getting Employees to Accept
the Budget
©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 7 - 34
Getting Employees to Accept
the Budget
©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 7 - 35
Participative Budgeting
©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 7 - 36
Exercise
Question:
Many non-profit organisations use budgets
primarily to limit spending. Why does this limit
the effectiveness of budgets?
[This tests your knowledge of the many roles
of budgets.]
©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 7 - 39
Exercise
©2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 7 - 40