Profit Planning (Budgeting) Learning Objectives
1. 2. 3. 4. 5. 6. 7. 8. 9. understand the budgeting process prepare a sales budget and a schedule of expected cash receipts prepare a production budget prepare a direct materials budget, including a schedule of expected cash disbursements for purchases prepare a direct labor budget prepare a manufacturing overhead budget prepare a selling and administrative expense budget prepare a cash budget prepare a budgeted income statement

10. prepare a budgeted balance sheet

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.

ACCT5243

Profit Planning (Budgeting)

Slide 2

1

Advantages of Budgeting
Define goal and objectives Communicating plans Think about and plan for the future

Advantages
Coordinate activities Uncover potential bottlenecks Means of allocating resources

ACCT5243

Profit Planning (Budgeting)

Slide 3

Responsibility Accounting; Choosing the Budget Period
• Responsibility accounting: Managers should be held responsible for those items — and only those items — that the manager can actually control to a significant extent.
Operating Budget

2012

2013

2014

2015

The annual operating budget may be divided into quarterly or monthly budgets.
ACCT5243 Profit Planning (Budgeting) Slide 4

2

Participative Budget System

Top Management

Middle Management

Middle Management

Supervisor

Supervisor

Supervisor

Supervisor

Flow of Budget Data
ACCT5243 Profit Planning (Budgeting) Slide 5

The Master Budget
Sales Budget

Production Budget Direct Materials Budget Direct Labor Budget

Selling and Administrative Budget Manufacturing Overhead Budget

Cash Budget

Budgeted