The document discusses profit planning and master budgeting. It explains that planning involves developing objectives and preparing budgets to achieve those objectives, while control involves ensuring the objectives are attained. Some advantages of budgeting mentioned are defining goals, uncovering bottlenecks, coordinating activities, communicating plans, and planning for the future. Responsibility accounting and choosing appropriate budget periods are also covered. The participative budget system and human factors in effective budgeting are summarized. Finally, the components of the master budget like production, selling and administrative budgets are outlined.
2. Planning and Control
PlanningPlanning ----
involvesinvolves
developingdeveloping
objectives andobjectives and
preparing variouspreparing various
budgets tobudgets to
achieve theseachieve these
objectives.objectives.
ControlControl ––
involves the stepsinvolves the steps
taken bytaken by
management thatmanagement that
attempt to ensureattempt to ensure
the objectives arethe objectives are
attained.attained.
3. Advantages of Budgeting
Advantages
Define goalDefine goal
and objectivesand objectives
Uncover potentialUncover potential
bottlenecksbottlenecks
CoordinateCoordinate
activitiesactivities
CommunicatingCommunicating
plansplans
Think about andThink about and
plan for the futureplan for the future
Means of allocatingMeans of allocating
resourcesresources
4. Responsibility Accounting
Managers should be held responsible forManagers should be held responsible for
those items — andthose items — and onlyonly those items — thatthose items — that
the manager can actually controlthe manager can actually control
to a significant extent.to a significant extent.
Managers should be held responsible forManagers should be held responsible for
those items — andthose items — and onlyonly those items — thatthose items — that
the manager can actually controlthe manager can actually control
to a significant extent.to a significant extent.
5. Choosing the Budget Period
Operating BudgetOperating Budget
1999 2000 2001 2002
The annual operating budgetThe annual operating budget
may be divided into quarterlymay be divided into quarterly
or monthly budgets.or monthly budgets.
The annual operating budgetThe annual operating budget
may be divided into quarterlymay be divided into quarterly
or monthly budgets.or monthly budgets.
6. Participative Budget System
Flow of Budget DataFlow of Budget Data
S u p e r v is o r S u p e r v is o r
M id d le
M a n a g e m e n t
S u p e r v is o r S u p e r v is o r
M id d le
M a n a g e m e n t
T o p M a n a g e m e n t
7. Human Factors in Budgeting
The success of budgeting depends upon:The success of budgeting depends upon:
• The degree to which top managementThe degree to which top management
accepts the budget program as a vitalaccepts the budget program as a vital
part of the company’s activities.part of the company’s activities.
• The way in which top managementThe way in which top management
uses budgeted data.uses budgeted data.
The success of budgeting depends upon:The success of budgeting depends upon:
• The degree to which top managementThe degree to which top management
accepts the budget program as a vitalaccepts the budget program as a vital
part of the company’s activities.part of the company’s activities.
• The way in which top managementThe way in which top management
uses budgeted data.uses budgeted data.
8. The Budget Committee
A standing committee responsible forA standing committee responsible for
• overall policy matters relating to the budgetoverall policy matters relating to the budget
• coordinating the preparation of the budgetcoordinating the preparation of the budget
A standing committee responsible forA standing committee responsible for
• overall policy matters relating to the budgetoverall policy matters relating to the budget
• coordinating the preparation of the budgetcoordinating the preparation of the budget
9. The Master Budget
Production
Budget
Selling and
Administrative
Budget
Direct
Materials
Budget
Manufacturing
Overhead
Budget
Direct
Labor
Budget
Cash
Budget
Sales
Budget
Budgeted Financial StatementsBudgeted Financial StatementsBudgeted Financial StatementsBudgeted Financial Statements
10. The Master Budget
Production
Budget
Selling and
Administrative
Budget
Direct
Materials
Budget
Manufacturing
Overhead
Budget
Direct
Labor
Budget
Cash
Budget
Sales
Budget
Budgeted Financial StatementsBudgeted Financial StatementsBudgeted Financial StatementsBudgeted Financial Statements