DOC PREVIEW
UGA ACCT 2102 - The Master Budget, Part I (Chapter 9)
Type Lecture Note
Pages 4

This preview shows page 1 out of 4 pages.

Save
View full document
View full document
Premium Document
Do you want full access? Go Premium and unlock all 4 pages.
Access to all documents
Download any document
Ad free experience
Premium Document
Do you want full access? Go Premium and unlock all 4 pages.
Access to all documents
Download any document
Ad free experience

Unformatted text preview:

What are the Benefits of Budgeting?How are Budgets Developed?ACCT 2102 1st Edition Lecture 26 Outline of Last LectureI. Problem #1II. Problem #2III. Problem #3IV. Problem #4Outline of Current Lecture:V. BudgetsVI. Types of Budgetsa. Operatingb. Financialc. Manufacturingd. MerchandisingVII. Operating Expenses BudgetCurrent Lecture: The Master Budget, Part I (Chapter 9)V. Budgets are quantitative plans used by managers to plan for resource requirements and to control operations.What are the Benefits of Budgeting?Budgeting forces management to plan for the future rather than just focusing on daily operations.In addition, budgets are tools used by management to communicate the company’s goals andprovide a means of coordinating activities and efforts throughout the company. Used properly,budgets help to align the goals of management with the goals of the company; this is known asgoal congruence. At the end of the period, budgets are used as a control tool to evaluateperformance. The difference between the budgeted figure and the actual result is called avariance. How are Budgets Developed?The majority of businesses now use a participative approach to budgeting. This approach relies onthe knowledge of multiple levels of management within the company. Participative budgeting isbeneficial for companies because the information gathered is more accurate and the involvementThese notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.of multiple levels of management results in increased motivation. On the down side, participativebudgeting increases the complexity of the budgeting process and the likelihood of budgetary slack.Budgetary slack is the intentional overbudgeting of expenses or underbudgeting of revenue. Slackis built into budgets to overcome inevitable budget cuts, to account for uncertainty in the market,and to improve the appearance of operational results. If slack causes a budget to be “loo loose,”employee motivation will suffer because the goals will be easy to achieve. Budgetary slack can beminimized by implementing a formal budget review process and by offering incentives tomanagement for meeting challenging, yet achievable goals. Upper management should be carefulduring the formal budget review process to not make the budget “too tight.” If a budget is “tootight,” employee motivation will suffer because the goals will be unattainable. Additionally,management should consider more than just monetary incentives for meeting goals set during thebudgeting process. Such things as recognition and additional vacation time also motivateemployees to achieve their goals. Companies often begin the annual budgeting process by reviewing the results of their prioroperating period and making the necessary adjustments to achieve future goals. The problem withthis approach is that it can often lead to annual budget increases that are not necessary. Toeliminate this problem, some companies will periodically begin the annual budgeting process witha “clean slate.” This approach is known as zero-based budgeting. The advantage of zero-basedbudgeting is that it forces management to consider every dollar that is included in the budget.Some companies also use a rolling budget approach. Instead of budgeting for 12 months at a time,the company is in perpetual budgeting mode. At all times, the company has 12 months worth ofbudgets available. The advantage to this approach is that it keeps management focused on theiroperational and strategic goals.VI. Types of Budgetsa) Operating Budgets- Sales Budget- FOR MERCHANDISING COMPANIES: Inventory, Purchases, and Cost of Goods Sold budget- FOR MANUFACTURING COMPANIES: Production, DM, DL, MOH- Operating Expenses budget- Budgeted Income Statementb) Financial Budgets- Capital Expenditure budget- Cash Budgets (collections, payments, and combined)- Budgeted Balance Sheetc) Manufacturing BudgetsI. Sales budget (expected unit and dollar sales)II. Production budget (expected number of units to produce)III. DM, DL & MOH budgets (expected resources needed to meet production)d) Merchandising Budgets • Sales Budget (expected unit and dollar sales)• Cost of Goods Sold, Inventory, and Purchases Budget (expected cost of inventory purchases)VII. Operating Expenses BudgetUniversity Apparel is a wholesaler who sells college sweatshirts to university bookstores. • August sales totaled $250,000 while September sales totaled $200,000. In October, sales are expected to increase 8% above their September level. November’s sales should be 10%above the October level. December sales are expected to be $250,000. Prices are set to achieve a 40% gross profit. • Like most companies, University Apparel maintains some safety stock. The company wants to maintain an ending inventory equal to $40,000 plus 10% of the next month’s cost of goods sold. • Prepare all merchandising budgets for October and November.1. Sales BudgetSales RevenueAugust 250,000September 200,000October 216,000November 237,600December 250,0002. Purchases BudgetAug. Sept. Oct. Nov. Dec.Sales Revenue 250,000 200,000 216,000 237,600 250,000Cost of Sales 150,000 120,000 129,600 142,560 150,000Cost of EI 52,000 52,960 54,256 55,000 ?<Cost of BI> <55,000> <52,000> <52,960> <54,256> <55,000>Cost of Purchases 147,000 120,960 130,896 143,304 95,000Cost of Sales = 60% x Sales RevenueCost of EI = 40,000 + 10% x next month’s Cost of SalesCost of BI = – (40,000 + 10% x current month’s Cost of


View Full Document

UGA ACCT 2102 - The Master Budget, Part I (Chapter 9)

Type: Lecture Note
Pages: 4
Documents in this Course
Load more
Download The Master Budget, Part I (Chapter 9)
Our administrator received your request to download this document. We will send you the file to your email shortly.
Loading Unlocking...
Login

Join to view The Master Budget, Part I (Chapter 9) and access 3M+ class-specific study document.

or
We will never post anything without your permission.
Don't have an account?
Sign Up

Join to view The Master Budget, Part I (Chapter 9) 2 2 and access 3M+ class-specific study document.

or

By creating an account you agree to our Privacy Policy and Terms Of Use

Already a member?