Matakuliah
Tahun
: COST ACCOUNTING
: 2009
Chapter 15, 16
BUDGETING:
PROFITS, SALES, COSTS, & EXPENSES,
AND CASH BUDGET
Learning 25, 26
Profit Planning (Budgeting)
Profit planning is the development of an operational plan to
achieve a company’s goals and objectives.
A budget is simply a plan expressed in financial and other
quantitative terms.
A company’s profit plan consists of a detailed operating
budget and budgeted financial statements.
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Profit Planning
Budgets are distinct from forecasts.
A budget represents the expected profit level of target that
management strives to achieve.
A forecast is what the organization predicts will occur.
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Long-Range Profit Planning
As the continuous process of making present decisions
systematically and, with the best possible knowledge of
their futurity, organizing systematically the efforts needed
to carry out these decisions, and measuring the results
of these decisions against expectations through
organized, systematic feedback.
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Short-Range Budgets
Long range plans must be incorporated into a shorter range
budget for planning and controlling the contemplated
course of action.
Short range budgets can cover periods of 3, 6, or 12
months, depending on the nature of the business.
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Advantages of Profit Planning
1. Profit planning provides a disciplined approach to
problem identification and problem solving.
2. Profit planning provides direction to all levels of
management.
3. Profit planning enhances coordination.
4. Profit planning provides a way to enlist ideas and
cooperation of all levels of management.
5. The budget provides a yardstick for evaluating actual
performance and gauging.
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Limitations of Profit Planning
1. Forecasting is not an exact science; a certain amount of
judgment is present in any estimate. Because a budget
must be based on forecasts of future events, a revision
or modification of the budget should be made when
variations from estimates warrant a change of plans.
2. The budget can focus a manager’s attention on goals
that are not necessarily in harmony with the
organization’s overall objectives.
3. Profit planning must be the commitment of top
management and the cooperation of all members of
management.
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Limitations of Profit Planning
4. Excessive use of the budget as an evaluation tool can
result in dysfunctional behavior.
5. Profit planning does not eliminate or replace the role
administration.
6. Installation takes time.
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Principles of Budgeting
The budgeting process usually is directed by a budget
committee composed of the sales manager, the production
manager, the chief engineer, the treasures and the
controller.
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Principles of Budgeting
The principal function of the budget committee are to:
1. Decide on general policies.
2. Request and review individual budget estimates.
3. Suggest revisions in individual budget estimates.
4. Aprrove budgets and later revisions.
5. Analyze budgets reports.
6. Recommend actions to improve efficiency
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The Complete Periodic Budget
A complete set of budgets generally consits of the following
elements:
1. A sales budget.
2. Estimates of inventory and production requirements.
3. Budgets of materials, labor, and factory overhead,
combined into a cost of goods manufactured and sold
schedule.
4. Budgets for marketing and administrative expenses
5. Estimates of other income and expense items and
income tax.
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6. A budgeted income statement.
7. A budget of capital expenditures and or research and
development expenditures.
8. A cash receipts and disbursements budget.
9. A budgeted balance sheet showing the estimated
financial position of the company at the end of the
budget period.
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Cash Budget
A cash budget involves detailed estimates of anticipated
cash receipts and disbursements for the budget period.
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Cash Budget
A cash budget does the following:
1. Indicates cash requirements needed for current
operating activities.
2. Aids in focusing on cash usage priorities that are
currently required and unavoidable versus those that
are postponable or permanently avoidable.
3. Indicates the cash effects of seasonal requirements,
large inventories, unusual receipts, and showness in
collecting receivables.
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4. Indicates the availability of cash for taking advantage of
discounts.
5. Indicates the cash requirements for a plant or
equipment expansion program.
6. Assists in planning for bond retirements, income tax
payments, and contributions to pension plan.
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7. Shows availability of excess funds for short term or long
term investments.
8. Shows the need for borrowings or sales of securities.
9. Serves as a basis for evaluating actual cash
management.
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