ACT 220: CHAPTER 7: BUDGETING FOR PLANNING AND CONTROL
10 Cards in this Set
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The Budget for planning
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developing objectives for acquisition and use of resources
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The Budget for Control
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steps taken by management to ensure that objectives are attained
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Purposes of Budgets
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1. Formalize management's plans in quantitative terms
2. Express management's plans for coming periods
3. Cause managers to anticipate results, and to act to correct poor results
4. increase motivation to achieve stated goals
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Benefits of Budgets
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1. More cost-conscious employees
2. Coordination of activities
3. Facilitates review and revision of plans
4. Management by exception
5. Develops a more visionary management
6. Communication of plans
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Considerations in Preparing a Budget
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1. Management assumptions
- economic conditions for planning period
- adding, deleting, or changing product lines
- nature and degree of competition
- effects of government regulation
2. Useful accounting data from past periods adjusted for future expectations
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Participatory Budget System
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1. Top Management
2. Middle Management
3. Supervisor
(creates a buy-in at all levels)
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The Master Budget
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- Master Budget - summary of all phases of company plans and objectives
- Is constructed from detailed budgets for:
- sales
- production costs
- Selling and administrative expenses
- other expenses
- cash
- Master budget consists of a projected income stat…
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The Sales Budget
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- Detailed schedule showing expected sales for the coming periods expressed in units and dollars
- All items in the budgeting process are dependent on a sales forecast
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Sales Forecast
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1. Complication of forecasts from sales staff
2. Statistical forecasts
3. Management intuition
4. Economic models
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Selling and Administrative Expense Budget
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1. Selling expense budgets contain both variable and fixed items
- variable items: shipping costs and commissions
- fixed items: advertising and sales salaries
2. Administrative expense budgets contain mostly fixed items
- executive salaries and depreciation on company o…
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ACT 220: EXAM 1