MOS 372 - Budgets
Budgets – Introduction
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Definition
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Advantages/Benefits
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Participative vs. Imposed budget
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Human relations issues
Disadvantages/Costs
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Responsibility Accounting
The Master Budget
The idea that each manager’s performance
should be judged by how well he or she
manages those items – and only those items –
directly under his or her own control
A network consisting of many separate
budgets that are interdependent
 Key parts:
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Sales budget
Cash budget
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Master Budget – Parts
The Cash Budget
Sales Budget – expected prices/volume,
product needs and cash collections
 Production Budget – expected ending
inventory, production
 Direct Materials Budget – required materials
 Direct Labour Budget
 Manufacturing Overhead Budget – all costs
of production (other than DM/DL)
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Major Sections
 Receipts
 Disbursements
 Cash excess or deficiency
 Financing
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MOS 372 - Budgets
Not-For-Profit Budgets
Zero-Base Budgets
No relationship between “revenue” sources
and expenses
 Accountability is key
 Zero-base budgeting
Managers are required to start at zero budget
level each time budgets are done, and must
justify all costs as if for the first time
 Differs from the traditional procedure or
“incremental” basis
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Activity-Based Budgeting
Continuous (Perpetual) Budgets
All budgeting is done based on service or
volume of activity and cost of each activity
 Rates for levels of activity are key
A form of master budget that adds a month
in the future as the month just ended is
dropped
 Also: perpetual or rolling budgeting
 Benefits?
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Drawbacks?
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Capital Budgets (not in
chapter)
Flexible (Variable) Budgets
Shows the planned behaviour of costs at
various volume levels
 Usually expressed in terms of a cost-volume
relationship
 A clearly defined time period, volume
definition is key
 Step-function costing must be appropriate
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© John Siambanopoulos
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Definition: Forecasting fixed asset (larger
cash outlays) needs
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Phases
Identify potential investment opportunities
Gathering info
 Selecting the investment (various methods)
 Follow-up (post-audit) evaluation
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