ACCT 2102 1nd Edition Lecture 13 Outline of Last Lecture II Business Decisions a Decisions to Discontinue b Product Mix Decisions c Outsourcing Decisions Outline of Current Lecture III Budgets a Operating Budgets Current Lecture Budgets Budgets are plans with numbers that are used before during and after a period Companies budget for three reasons The first is because they are forced to plan for the future The second is that the use budgets for communication tools in order to set expectations The third is to evaluate their performance Most companies budget using a participative approach this is when multiple levels of management budget collectively The advantages to participative budgeting it accuracy and motivation however participative budgeting can also cause complexity and budgetary slack Budgetary slack is the intentional over budgeting of expenses or the under budgeting of revenue Companies use three different types of budgeting approaches to begin their budgeting process The first is Prior Year review This is when companies look at budgets and numbers from the previous year and base budgets off of these numbers This can cause increases to levels that are not needed however Another type is Rolling Budgets This is when 12 months are used for budget perpetually The third is zero based budgeting which is where you start from zero and begin with a clean slate Operating Budgets 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 In this chapter we focus on 2 types of operating budgets The first is the Sales Budget In the sales budget we multiply the amount of units by the sales price in order to come with the sales revenue of a certain month and or period The second type is the Purchases Budget This budget is created by taking the cost of goods sold plus the ending inventory minus the beginning inventory in order to find out purchasing amount Keep in mind that this is used for merchandising companies
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