ACCTG 231 – 1st Edition Lecture 11 Outline of Last Lecture I. EquationsII. Cost Structure/Profit Stability/Operating LeverageOutline of Current Lecture I. BudgetingII. Cost Structure/Profit Stability/Operating LeverageCurrent LectureThe Basic Framework of Budgeting- Budget: a detailed quantitative plan for acquiring and using financial and other resourcesover a specified forthcoming time period.o The act of preparing a budget is called budgeting.o The use of budgets to control an organization’s activities is known as budgetary control.- Planning:o Involves developing objectives and preparing various budgets to achieve those objectives.- Control:o Involves the steps taken by management to increase the likelihood that the objectives set down while planning are attained and that all parts of the organization are working together toward that goal.- Self-Imposed Budget:o A self-imposed budget or participative budget is a budget that is prepared with the full cooperation and participation of managers at all levels.o Advantages: Individuals at all levels of the organization are viewed as members of the team whose judgments are valued by top management. Budget estimates prepared by front-line managers are often more accurate than estimates prepared by top managers. Motivation is generally higher when individuals participate in setting theirown goals than when the goals are imposed from above.These 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. A manager who is not able to meet a budget imposed from above can claim that it was unrealistic. Self-imposed budgets eliminate this excuse.o Self-Imposed budgets should be review by higher levels of management to prevent “budgetary slack”.- The Production Budget:o The production budget must be adequate to meet budgeted sales and to provide for the desired ending inventory.o Desired Ending Inventory: (Budgeted Sales X Desired Ending Inventory %)Format of the Cash Budget: - The cash budget is divided into four sections:o Cash receipts section lists all cash inflows excluding cash received from financingo Cash disbursements section consists of all cash payments excluding repayments of principal and interesto Cash excess or deficiency section determines if the company will need to borrow money or if it will be able to repay funds previously borrowedo Financing section details the borrowings and repayments projected to take place during the budget
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