...Accounting The Master Budget for a profit oriented organization seeks to build a set of interrelated budgets which provide a complete "picture" of the operations of the business over some future period, usually twelve months. The elements of the master budget address both operating and financial concerns. (Blocher, 2002) It is not difficult to devise a master or overall budget. It is simply your realistic, long-term aspirations translated into total costs. So often, families consider only the cost for the item, when the item in question comes with accompanying repair or installation costs. For example, an air conditioner may require electrical, plumbing and installation expense. (www.debtfreebenefits.com) Those "other" costs should be considered in establishing the financial impact on the family budget. Sometimes the incidental costs may be as great at the time as the major purchase itself. Good planning or budgeting usually avoids these mistakes. (www.debtfreebenefits.com) After the long term objectives are established, each objectives must be put into annual terms. There are many questions to answer: When can you buy it, how much will it cost, do you pay it all now or can you spread the total costs over more than one year? (www.debtfreebenefits.com) A master budget is simply the compilation of these major considerations put on the same page (s) so that the total picture for a lifetime, year, month, week or day can be properly reviewed...
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...CHAPTER 6 MASTER BUDGET AND RESPONSIBILITY ACCOUNTING I. LEARNING OBJECTIVES 1. Describe what the master budget is and explain its benefits 2. Describe the advantages of budgets 3. Prepare the operating budget and its supporting schedules 4. Use computer-based financial planning models in sensitivity analysis 5. Explain kaizen budgeting and how it is used for cost management 6. Prepare an activity-based budget 7. Describe responsibility centers and responsibility accounting 8. Explain how controllability relates to responsibility accounting II. CHAPTER SYNOPSIS Chapter 6 introduces the important topic of budgets. Budgets are the primary financial planning tool used by businesses. The chapter explains how businesses use budgets and budgeting as part of the management process. The concept of responsibility centers and responsibility accounting is also discussed and related to the concept of controllability. III. CHAPTER OUTLINE Budgets represent in financial and nonfinancial terms the plans of a business for a specified period of time. Financial budgets are, in essence, financial statements that report expected or proposed future activity instead of what has already occurred. Supporting these financial budgets are nonfinancial budgets that report expected or proposed future activity in areas such as number of employees, new products developed, and number of units produced or sold. (Exhibit 6-1 illustrates...
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...covered in detail in chapters one and two. Budgetary control is defined by the Institute of Cost and Management Accountants (CIMA) as: "The establishment of budgets relating the responsibilities of executives to the requirements of a policy, and the continuous comparison of actual with budgeted results, either to secure by individual action the objective of that policy, or to provide a basis for its revision". Chapter objectives This chapter is intended to provide: marketing as a key marketing control technique An overview of the advantages and disadvantages of budgeting Structure of the chapter Of all business activities, budgeting is one of the most important and, therefore, requires detailed attention. The chapter looks at the concept of responsibility centres, and the advantages and disadvantages of budgetary control. It then goes on to look at the detail of budget construction and the use to which budgets can be put. Like all management tools, the chapter highlights the need for detailed information, if the technique is to be used to its fullest advantage. Budgetary control methods a) Budget: activities in a given period of time. -ordinate the activities of the organisation. An example would be an advertising budget or sales force budget. b) Budgetary control: can either exercise control action or revise the original budgets. Budgetary control and responsibility centres; These enable managers to monitor organisational functions. A responsibility centre can be defined as...
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...9-1 A budget is a detailed plan outlining the acquisition and use of financial and other resources over a given time period. As such, it represents a plan for the future expressed in formal quantitative terms. Budgetary control involves the use of budgets to control the actual activities of a firm. 9-2 1. Budgets provide a means of communicating management’s plans throughout the organization. 2. Budgets force managers to think about and plan for the future. 3. The budgeting process provides a means of allocating resources to those parts of the organization where they can be used most effectively. 4. The budgeting process can uncover potential bottlenecks before they occur. 5. Budgets coordinate the activities of the entire organization. Budgeting helps to ensure that everyone in the organization is pulling in the same direction. 6. Budgets define goals and objectives that can serve as benchmarks for evaluating subsequent performance. 9-3 Responsibility accounting is a system in which a manager is held responsible for those items of revenues and costs—and only those items—that the manager can control to a significant extent. Each line item in the budget is made the responsibility of a manager who is then held responsible for differences between budgeted and actual results. 9-4 A master budget represents a summary of all of management’s plans and goals for the future, and outlines the way in which these plans are to be accomplished. The master budget is composed...
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... Budgeting and Performance Evaluation at the Berkshire Toy Company Dean Crawford and Eleanor G. Henry ABSTRACT: This case^ provides an opportunity to study budgets, budget variances, and performance evaluation at several levels. As a purely mechanical problem, the case asks for calculations of various price, efficiency, spending, and volume variances from a set of budgets and actual results. The case is also an interpretive exercise. After the variances have been computed, the next step is to develop plausible conjectures about their likely causes. Finally, it is a case about performance evaluation and responsibility accounting. The company has an incentive plan, based on the budget variances, that needs to be analyzed and critiqued. INTRODUCTION anet McKinley is employed by the Quality Products Corporation, a publicly traded conglomerate. The corporation manufactures and sells many different kinds of products, including luggage, music synthesizers, breakfast cereals, peanut butter, and children's toys. McKinley is Vice President in charge of the Berkshire Toy Company, a division of Quality Products. It is late July 1998 and McKinley has just received the preliminary income statement for her division for the year ended June 30, 1998 (see Table 1). The master (static) budget and master budget variances for the same period are included for comparison purposes. McKinley looks at the bottom line, a loss approaching a million dollars, then picks up the...
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...MASTER MINDS - QUALITY EDUCATION BEYOND YOUR IMAGINATION 8. BUDGETARY CONTROL 1. DEFINE THE TERM BUDGET. Definition: Budget is a financial and /or quantitative statement, prepared and approved prior to a defined Period of time of the policy to be pursued during that period for the purpose of attaining a given objective. It may include income, expenditure and employment of capital. Features: 1. 2. 3. 4. Financial and/or Quantitative Statement. Futuristic prepared and approved prior to a defined period of time. Goal Oriented for the purpose of attaining a given objective. Components Income, Expenditure and Employment of Capital. 2. WHAT ARE THE OBJECTIVES OF BUDGETING/PERFORMANCE BUDGETING? The objectives of Budgeting are 1. To encourage selfstudy in all aspects of a Company's operations. 2. To get all members of management to “put their heads” to the basic question of how the business should be run, to make them of a coordinated team operating in unison towards clearly defined objectives. 3. To promote the planning process and provide a sense of direction to every member of the organization. 4. To force a definition and crystallization of Company policies and aims. 5. To increase the effectiveness with which people and capital are employed. 6. To disclose areas of potential improvement in the Company’s operations. 7. To stimulate study of relationship of the Company to its external economic environment for improving the effectiveness of its direction...
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...TABLE Brief Exercises A Problems B Problems Study Objectives Question s Do It! Exercises 1. Indicate the benefits of budgeting. 1, 2, 4 1 2. State the essentials of effective budgeting. 3, 5, 6, 7, 8 1 1 3. Identify the budgets that comprise the master budget. 9, 10, 11, 12, 13, 14, 15, 16 1, 2, 3, 4, 5, 6, 7 1, 2, 3 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13 1A, 2A, 3A 1B, 2B, 3B 4. Describe the sources for preparing the budgeted income statement. 17, 18 8 4 13 1A, 2A, 3A, 6A 1B, 2B, 3B 5. Explain the principal sections of a cash budget. 19, 20 9 5 14, 15, 16, 17, 18, 19 4A, 6A 4B 6. Indicate the applicability of budgeting in nonmanufacturing companies. 21, 22 10 3,18, 19, 20 5A 5B Copyright © 2010 John Wiley & Sons, Inc. Weygandt, Managerial Accounting, 5/e, Solutions Manual (For Instructor Use Only) 9-1 ASSIGNMENT CHARACTERISTICS TABLE Problem Number Description Difficulty Level Time Allotted (min.) 1A Prepare budgeted income statement and supporting Simple 30–40 Correlation Chart between Bloom’s Taxonomy, Study Objectives and End-of-Chapter Exercises and Proble budgets. Study Objective 2A Knowledge Prepare sales, production, direct materials, direct labor, Comprehension and income statement budgets. Application Analysis Simple 40–50 3A 1. Q9-1 Q9-2 Q9-4 E9-1 5A Prepare sales and production budgets and compute...
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...16 Chapter Sixteen Fundamentals of Variance Analysis LEARNING OBJECTIVES After reading this chapter, you should be able to: L.O.1 Use budgets for performance evaluation. L.O.2 Develop and use flexible budgets. L.O.3 Compute and interpret the sales activity variance. L.O.4 Prepare and use a profit variance analysis. L.O.5 Compute and use variable cost variances. L.O.6 Compute and use fixed cost variances. L.O.7 (Appendix) Understand how to record costs in a standard costing system. For the second month in a row, profits at our Bayou Division are down and I don’t know why. We budgeted $190,000 in profit for August, but the actual result was only $114,500. We thought we had developed realistic monthly budgets. I know sales were down some, but I’m not sure that is the only problem there is. I am not one who believes that favorable variances are always “good” and unfavorable variances are always “bad.” [See the In Action item, “When a Favorable Variance Might Not Mean ‘Good’ News.”] I need more information from the analysis if I am going to turn things around. What I need to know is whether we should focus on improving the marketing of the division or if we need to take a look at our manufacturing operations. We don’t have a lot of extra resources here at Corporate, so I have asked Philippe [Broussard, the president of Bayou] to identify the primary cause of the shortfall—revenues or costs—and report back to me next week. If Bayou can’t improve, we may have to dispose of...
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...money is coming in? Every year companies have dedicated departments that are looking at what is called a Master Budget for every part of the company. Many managers are retrieving records or historical data to help set the budget in their areas. “A budget is a quantitative plan for acquiring and using resources over a specified time period” (Noreen, 2010, p. 288). Many individuals across America have and live by an annual budget that they set for themselves each year. Budgets can be very difficult and tiresome to build each year but they have to be done. Once a budget is established by the manager or the company, it is used to compare spending that is occurring through-out the year (Noreen, 2010) Even though budgets are not always accurate, managers use budgets to help operate a company efficiently because they coordinate work operations, and they help communicate managements plans. Planning the Budget First, managers use budgets to help operate a company efficiently because they coordinate work operations. According to Noreen (2010) “Budgets are used for two distinct purposes-planning and control (Noreen, 2010). A company set goals with budget in mind and then the budgets are used to achieve these goals. The first stage of the budget is to plan for what is going to happen for the year coming up. What one will see with many companies is, the company will project, budget and forecast in order to make their operation more successful. What is important to companies is not...
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...As an Educational Administrator use the ‘POSDCORDE’ management principle in your organization and show its effectiveness in outcomes or output produced. The acronym POSDCORB (E) has been used in all schools and other organizations all over the world. It is a management technique that has been accepted by all managers and administrators in both the public and private secondary schools in Mauritius. However, some administrators are not making effective use of the management principles and this has a negative effect on the performance of students. In order, to achieve better results in the 21st century which is characterized as a technological world, administrative quality in terms of competent leaders are required. I work for a fee-paying school which is the Institue. The Institute has opened its doors 10 years back with less than 50 students, but the rector was not discouraged and today the school population is over 300. The Institute is known for its discipline as this is not the case in other state secondary schools. Moreover, teachers are asked to give special attention to weak students in order to make them pass the exams. The Rector does apply the acronym POSDCORB (E), but does not make the maximum use of it, and this affects the results at the end of the year. The acronym POSDCORB (E) can be stated below where: P= PLANNING O=ORGANISING S=STAFFING D=DIRECTING C=COORDINATION R= REPORTING B= BUDGETING E=EVALUATION PLANNING “Planning bridges the gap from where...
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...OPERATIONS DEPARTMENT BACKGROUND: Operations Department headed by HOD (Ops) is the line department of DCI and is responsible for undertaking the dredging operations to fulfill the contractual obligations of DCI. All other departments extend support services to Operations Department in meeting the above responsibilities. Operations department is responsible for monitoring and control of various projects undertaken. Operations Department exercise control over all the Project Offices as well as all the Vessels. Project Offices are headed by Project-in-charge (PIC) and Vessels are headed by Masters. Masters of all DCI vessels, report to PICs who in turn report to HOD (Ops). Operations department strives for improvement of performance/ production, provides safe practices in dredging operations, complying with all Statutory Rules & Regulations of the Government, Ports and by establishing Procedures to safe guard against all identified risks and avoidance of damage to the property particularly while working and at sea. Operations Department looks after deployment of various dredgers at Dredging and Reclamation Projects as per the contracts concluded between the DCI and customers such as Major Ports, Minor Ports, Indian Navy, Ship building yards, Inland dredging organizations in India and major dredging and reclamation projects abroad. Operations department also looks after issues with respect to carrying out Hydrographic survey, soil explorations/ investigations and...
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...HW Solution Chapter 1: Case (One day in the life) This case shows a glimpse of what it is like to be a project manager. It also underscores that being a project manager is more social than technical and that project managers spend the majority of their time interacting with various people who impact a project. 1. How effectively do you think Rachel spent her day? You may argue that she is inefficient and does not have control over her time. You may also argue that this is the nature of the job as expected, and that she is appropriately spending her time managing relations and keeping on top of things that affect the project. Students with little work experience are often much more critical than those with work experience. 2. What does the case tell you about what it is like to be a project manager? Rachel’s day underscores three key functions project managers spend their time performing: a. Building and sustaining interpersonal relations. Project managers have to network and develop good working relations with team members and other project stakeholders. b. Information gathering and dissemination. Project managers are the information hub for their projects. They are in constant communication with various stakeholders, collecting information from various sources, and sending it to those who have a need to know. c. Decision-making. Project managers consult with various people to make decisions necessary to complete the...
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...|MQF Level/Stage |Bachelor – MQF Level 6 | | |Note : | | | |Certificate – MQF Level 3 | | | |Diploma – MQF Level 4 | | | |Bachelor – MQF Level 6 | | | |Masters – MQF Level 7 | | | |Doctoral – MQF Level 8 | | | |Credit Value |3 Credit Hours | | |Version |Date of Previous Version : N/A | | |(state the date of the last Senate approval)...
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...Budget For Planning and Control An integral part of the modern business enterprise, budgeting not only aids in the planning process, but it also provides an array of accounting measures that can be used to hold managers accountable for the firm's performance. By Richard Sansing A budget is a projected set of consequences of carrying out planned activity. Firms use budgets to facilitate the communication of specialized information from throughout the firm so that an internally consistent production plan can be devised. The budgeted numbers are then used to record certain transactions. Differences between budgeted and actual performance then appear in the accounting records, and can be analyzed so as to evaluate the performance of the firm. The budgeting process interacts with the operations research process in two ways. First, the budget process facilitates the transfer of both accounting and non-accounting information to those involved in operations. This information provides a basis for the formulation of the firm's production plan. Second, the budget reflects the production plan, and becomes a benchmark for subsequent performance evaluation. An analysis of deviations from the budget provides additional information that can be used when formulating the next period's production plan. The Planning Stage Feldman Toy Company makes two types of toys, regular and deluxe. Each toy requires the use of machine time in the production process. To illustrate the way the budget...
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...Home (310) 545-6921 FAX (310) 546-7671 Email cmcpeak@pepperdine.edu Course Description The primary emphasis of this study is to place sophisticated tools and techniques in the hands of primary users in making business decisions. Specific topics include cost behavior analysis, cost management systems, relevant cost analysis, performance measurement, and value-based management control systems. The course also includes presentations in teams whereby the students apply the course material. Course objectives At the conclusion of this course the student should be able to communicate cost information orally and in writing and should demonstrate managerial level analysis and decision making in the following areas: 1.Cost-Profit-Volume Analysis 2.Master budgeting 3.Relevant revenues 4.Management control systems 5.Performance measurement 6.Activity based costing 7.Job order costing 8.Ethical issues and the impact of Sarbanes-Oxley 9.The use of production data and information technology to solve business problems Text and Course Materials 1.Horngren, Foster & Datar “Cost Accounting A Managerial Emphasis”, Twelfth Edition, Prentice Hall, 2006 2.Harvard Business School Case 9-198-117 Rev. September 17, 1998, “Classic Pen Company: Developing an ABC Model” 3.Harvard Business School Case 9-197-097 Rev. June 11, 2003, “Prestige Telephone Company” 4.Harvard Business School Case 0-100-066 June 7, 2000, “Hollydazzle.com” 5.Calculator 6.Laptop computer Grading Homework Class participation Classic...
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