Cost Accounting Foundations and Evolutions Kinney, Prather, Raiborn

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Cost Accounting Foundations and ٌ Evolutions Kinney, Prather, Raiborn Chapter 8 The Master Budget 0 000 7 

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ie. ۰ 5 ¢ Explain why budgeting is important * Describe how strategic planning is related to budgeting * Identify the starting point of a master budget and explain why it is the starting point * Prepare various master budget Err Teh 20 a ce) ‏ست‎ 07 they relate to one another 

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ie. ۰ 5 * Explain why the cash budget is ۱۹۹/7 in the master budgeting process * List the benefits provided by a budget * (Appendix) Explain how a budget manual facilitates the budgeting process 

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ie. ۰ 5 ° Budgeting - Formalizes plans and ۱9۹-۱۱۱۹۱ 15 into a documented, quantitative format ° Budget - Expresses a commitment to planned activities and resource acquisition and use 

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* Long-term (5 to 10 years) * Top-level management ¢ Long-range goals, strategies, and policies * Foundation for short-term planning * Identify and gather information on key variables, both internal and ‏موه‎ نت 

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Tactical me * Short-term (1 to 18 months) * Top and middle management * Specific objectives and means to achieve strategic plans * Basis against which results can be measured 

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Budgeting = ¢ Short-term ¢ Top, middle, and operational management involvement * Usable guidelines to implement strategic and tactical plans ¢ Allocates resources ¢ Standard against which performance can be measured 

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ie. ۰ 5 ۱ A comprehensive set of budgets, budgetary schedules, and pro forma organizational financial statements * For a specific period of time * Static - based on a single level of output demand * Interactive - departments generate and consume information 

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The Master Budget Gen Oa 0 (CN a ۱3 ۱ ‏اكت‎ ‏سحا‎ ‏اس سس رت‎ بو OT at RON ca PN rae aN hoo [Purchases Durdet ‏احولی 60 هرا و(‎ 50 Cee ic erie me aed الیظ) 

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ار ° Extrapolate past trends * Use market research * Employ statistical models and simulation 

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ie. ۰ 5 * Production manager combines - Sales estimates - Beginning inventory targets - Ending inventory targets ٠ ‏رعمتاتاصهنتن رعومجا مطا عمصتصتماوظ‎ and timing of products to be manufactured 

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ie. ۰ 5 ¢ Total number of people * Specific types of workers * Production hours needed * Costs - Union contracts ‏ا اا‎ - Fringe benefit costs - Payroll taxes 

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* Identify activity base ¢ Estimate overhead costs * Separate costs as fixed or variable * Show total costs for operating budgets * Show costs without depreciation for cash budgets pW ee Olek TCs 

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The Financial Budget OTe ar at ae Oe A eed a Cand Gk 0 متا ‎Od‏ ۱ ۹ الیظ) جله) سس رت ‎aNd CN eco‏ هه ‎CEN ca‏ 

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ie. 32 5 * Highlights importance of cash for organization’s continued existence ¢ Translates accrual-based information into cash flows ۳ * Indicates effectiveness of credit practices * Allows for planned cash borrowing or investing ۰ ۳ to ea pro forma Cash Flow 

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ie. ۰ 5 * Long-term fixed asset needs - Plant - Equipment ¢ Payment points 

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ie. ۰ 5 * Continuous budgeting ¢ Budget slack * Participatory budget * Imposed budgets BACCO LAS Mh me EEL LL eCoouC SAL - imposed on operating personnel 

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* Connect line items in budget to list of activities ¢ Raise awareness of non-value- added activities * Question and reduce non-value- added costs 

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ie. ۰ 5 * How are strategic and tactical planning related to budgeting? + In what order are the master budget schedules prepared? * Why is the cash budget important in the master budgeting process? 

Cost Accounting Foundations and Evolutions Kinney, Prather, Raiborn Chapter 8 The Master Budget Learning Objectives (1 of 2) • Explain why budgeting is important • Describe how strategic planning is related to budgeting • Identify the starting point of a master budget and explain why it is the starting point • Prepare various master budget schedules and explain how they relate to one another Learning Objectives (2 of 2) • Explain why the cash budget is important in the master budgeting process • List the benefits provided by a budget • (Appendix) Explain how a budget manual facilitates the budgeting process Terms • Budgeting - Formalizes plans and translates qualitative narratives into a documented, quantitative format • Budget - Expresses a commitment to planned activities and resource acquisition and use Strategic Planning Strategic Planning • Long-term (5 to 10 years) • Top-level management • Long-range goals, strategies, and policies • Foundation for short-term planning • Identify and gather information on key variables, both internal and external Tactical Plans Tactical Planning • Short-term (1 to 18 months) • Top and middle management • Specific objectives and means to achieve strategic plans • Basis against which results can be measured Budgeting Budget • Short-term • Top, middle, and operational management involvement • Usable guidelines to implement strategic and tactical plans • Allocates resources • Standard against which performance can be measured The Master Budget • A comprehensive set of budgets, budgetary schedules, and pro forma organizational financial statements • For a specific period of time • Static – based on a single level of output demand • Interactive – departments generate and consume information The Master Budget Budget Operating Budgets Financial Budgets Sales Budget Production Budget Purchases Budget Direct Labor Budget Overhead Budget Selling & Administrative Budget Cash Budget Capital Expenditures Budget Balance Sheet Income Statement Statement of Cash Flows Statement of Retained Earnings The Operating Budget Sales Budget Selling and Admin Budget Production Budget Purchases Budget Overhead Budget Direct Labor Budget Sales Forecast • Ask sales personnel • Extrapolate past trends • Use market research • Employ statistical models and simulation Sales Forecast Production Budget • Production manager combines – Sales estimates – Beginning inventory targets – Ending inventory targets • Determines the types, quantities, and timing of products to be manufactured Direct Labor Budget • Total number of people • Specific types of workers • Production hours needed • Costs – Union contracts – Minimum wage laws – Fringe benefit costs – Payroll taxes Overhead Budget • Identify activity base • Estimate overhead costs • Separate costs as fixed or variable • Show total costs for operating budgets • Show costs without depreciation for cash budgets The Financial Budget Statement of Cash Flows Cash Budget Capital Budget Income Statement/C OGMfg Operating Budget Statement of Retained Earnings Balance Sheet Cash Budget • Highlights importance of cash for organization’s continued existence • Translates accrual-based information into cash flows • Indicates effectiveness of credit practices • Allows for planned cash borrowing or investing • Used to prepare pro forma Cash Flow Statement Capital Budget • Long-term fixed asset needs – Plant – Equipment • Payment points Budgeting Terms • Continuous budgeting • Budget slack • Participatory budget • Imposed budgets – developed by top management – imposed on operating personnel Activity Budget • Connect line items in budget to list of activities • Raise awareness of non-valueadded activities • Question and reduce non-valueadded costs Budget Questions • How are strategic and tactical planning related to budgeting? • In what order are the master budget schedules prepared? • Why is the cash budget important in the master budgeting process?