BBA PROGRAM
Managerial Accounting
Fall 2022-2023
Budgetary Planning and Control
Slide 10-2
Budgets
▪ Formal documents that quantify a
company’s plans for achieving its
goals
▪ For many companies, the entire
planning and control process is built
around budgets.
Slide 10-3
Use of Budgets in Planning
▪ Budgets enhance communication
and coordination
▪ Process forces managers to consider
their goals and objectives carefully
▪ Managers must specify means of
achieving goals and objectives
Slide 10-4
Use of Budgets in Control
Process
▪ Provide a basis for evaluating
performance
▪ Essential to assess the performance of
managers and their operations
▪ Performance evaluation compares
actual with planned or budgeted
performance
Slide 10-5
Use of Budgets in Control
Significant deviations from planned
performance associated with three
potential causes:
1. The budget was poorly conceived
2. Conditions have changed
3. Managers have done a particularly
good or poor job managing operations
Slide 10-6
Developing the Budget
Budgets are prepared for:
▪ Departments
▪ Divisions of a company
▪ For the entire company
Budget Committee
▪ Responsible for approval of various budgets
▪ Made up of senior managers (Presidents, CFO,
controller, etc.)
▪ Typically works with departments to develop
realistic plans
Slide 10-7
Budget Time Period
▪ Managers must decide on a budget
period
- Short run budgets prepared for a
month, a quarter, or a year
- Long run budgets prepared for a threeyear or five-year period
▪ Generally, the longer the time frame the
less detailed the budget
Slide 10-8
Components of the Master Budget
The master budget includes:
Sales budget
Production budget
Direct materials purchases budget
Direct labor budget
Manufacturing overhead budget
Selling and administrative expense
budget
▪ Capital acquisitions budget
▪ Cash budget
▪
▪
▪
▪
▪
▪
Slide 10-9
Master Budget
Slide 10-10
Master Budget
Sales
Budget
Quantity
1,500
SP / Unit
350
Total Sales
Ending Inventory
525,000
Collect P1
393,750
Collect P2
131,250
Beginning Inventory
Ending Inventory
1,000
500
2,000
DM / Unit
Cost / U. DM
75
2,000
2
DLH rate
20
Total DL
80,000
70
Total Purchase value
287,000
Pay P1
114,800
Pay P2
172,200
Operational
expenses
Administrative
Cash Budget
P0
178,000
Collect P1
393,750
Pay P1
514,800
P1
2
4,000
MOH/Unit
DLH/Unit
4,100
To produce
150,000
50
4,000
To buy
MOH Budget
150
Consumption
1,500
DLH consumed
DL Budget
Beginning Inventory
Inventory Sold
Budgeted overhead
Production
DM Budget
Production
Budget
56,950
130,000
Selling
25,000
Others
15,000
Total
170,000
Budgetary Control
Budgets as a Standard for Evaluation
- The standard is the budgeted amount
- Differences between budgeted and actual
amounts are called budget variances
- Budget variances should be investigated
when they are material
Slide 10-12
Static and Flexible Budgets
▪ Static Budget
Not adjusted for the actual level of production
▪ Flexible Budget
Can be adjusted for various production levels
▪ Level of activity used in flexible budget is
equal to the actual activity level
Slide 10-13
Investigating Budget Variances
▪ Variances are differences between
budgeted and actual amounts
▪ Causes of Budget Variances
- Budget may not have been well
conceived
- Conditions may have changed
- Managers may have performed
particularly well or poorly
Problem 10.11
Slide 10-14
Questions ?
Slide 10-15