STUDENT
CHAPTER 9
MANAGERIAL
ACCOUNTING
PowerPoint Presentation by
Gail B. Wright
Professor Emeritus of Accounting
Bryant University
© Copyright 2008 Thomson South-Western, a part of The
Thomson Corporation. Thomson, the Star Logo, and SouthWestern are trademarks used herein under license.
10TH EDITION
BY
MAHER, STICKNEY & WEIL
PROFIT PLANNING & BUDGETING
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Managerial Planning, Control, & Performance Evaluation
LEARNING OBJECTIVES
1. Explain the use of a budget as a tool for
planning & performance evaluation.
2. Explain how a budget can affect employee
motivation.
3. Compare the 4 types of responsibility
centers.
4. Describe the master budget.
Continued
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Managerial Planning, Control, & Performance Evaluation
LEARNING OBJECTIVES
5. Explain the difference between a flexible
budget & a master budget.
6. Describe ethical dilemmas in budgeting.
7. List components of a comprehensive master
budget (Appendix 9.1).
8. Describe an incentive model for accurate
reporting (Appendix 9.2).
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Managerial Planning, Control, & Performance Evaluation
☼
CHAPTER GOAL
☼
This chapter shows how a short-term operating
budget is established & how it fits into the
overall plan for achieving organization goals.
You will also learn how ethical issues affect
the budgeting & performance evaluation
process.
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LO 1
Managerial Planning, Control, & Performance Evaluation
BUDGET: Definition
Is a plan of the resources
needed to carry out tasks &
meet financial goals.
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LO 1
Managerial Planning, Control, & Performance Evaluation
STRATEGIC PLANNING
Companies start the strategic planning
process by stating their critical success
factors, that is the most important
things the company must do for
success. Companies build on critical
success factors to expand operations.
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LO 1
MASTER BUDGET
Managerial Planning, Control, & Performance Evaluation
A master budget is part of the overall
organization plan for the next year & includes
Organizational goals
Strategic long-range profit plan
Master budget (a tactical short-range profit plan)
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LO 1
ORGANIZAITONAL GOALS:
Managerial Planning, Control, & Performance Evaluation
Definition
Are broad objectives
management establishes &
employees work to achieve.
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LO 1
STRATEGIC LONG-RANGE
PROFIT PLAN
Managerial Planning, Control, & Performance Evaluation
Any plan that focuses on the intermediate or
distant future is stated in broad terms
Cost control
Optimize contribution from existing product lines by
holding product cost increases to less than the general
rate of inflation
Market share
Maintain market share by providing a level of service &
quality comparable to our top competitors
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LO 2
PARTICIPATIVE BUDGETING:
Managerial Planning, Control, & Performance Evaluation
Definition
Is a process of gathering
information from lower- &
middle-management
employees.
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LO 2
Managerial Planning, Control, & Performance Evaluation
MOTIVATION
Ideally, budgets should motivate people &
facilitate their activities. Managers should
consider:
What types of behavior does the system motivate?
Is this the desired behavior?
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LO 3
RESPONSIBILITY CENTER:
Managerial Planning, Control, & Performance Evaluation
Definition
Is a division, department
responsible for managing a
particular group of activities in
the organization.
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LO 3
RESPONSIBILITY CENTERS: 4
Types
Cost centers
Example: Manufacturing departments
Managers responsible for managing costs
Managerial Planning, Control, & Performance Evaluation
Engineered cost centers: well-established input/output relations
 Production departments
Discretionary cost centers: input/output relations not well specified
 Research departments
Revenue centers
Example: Marketing departments
Managers responsible for revenues
Continued
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LO 3
RESPONSIBILITY CENTERS: 4
Types
Profit centers
Managerial Planning, Control, & Performance Evaluation
Managers responsible for managing costs &
revenues
Investment centers
Example: Corporate divisions
Managers responsible for costs, revenues, &
assets
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LO 4
Managerial Planning, Control, & Performance Evaluation
MASTER BUDGET
After organizational goals, strategies, &
long-range plans have been developed,
work begins on master (static) budget.
Budgeting is a process that ties goals,
plans, decision making & employee
performance evaluations together.
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B
U
D
G
E
T
LO 4
SALES BUDGET
PRODUCTION BUDGET
Managerial Planning, Control, & Performance Evaluation
MARKETING BUDGET
P
R
O
C
E
S
S
ADMINISTRATIVE BUDGETS
PROFIT PLANNING BUDGET
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LO 4
DEVELOPING SALES
BUDGET
Managerial Planning, Control, & Performance Evaluation
Forecasting Sales is the heart of the budgeting
process and perhaps the most difficult.
Information is sought from many sources.
Sales staff
Market researchers
Delphi technique
Trend analysis
Econometric models
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LO 4
Managerial Planning, Control, & Performance Evaluation
DEVELOPING PRODUCTION
BUDGET
Production budgets begin with Beginning
Inventory (BI). They combine this with estimate
of units to be sold & desired Ending Inventory
(EI) to estimate production.
Units Produced =
Units to be sold + Desired EI – Units BI
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LO 4
Managerial Planning, Control, & Performance Evaluation
What is a flexible
budget?
Flexible budgets are used
to compute costs that the
production department
should have incurred for
actual units produced.
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LO 4
MANAGERS WANT TO KNOW!
Managerial Planning, Control, & Performance Evaluation
What happens if
projected profit is
not the desired
profit?
When projected profit
does not meet the desired
level, managers will seek
ways to improve profits.
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LO 5
MANAGERS WANT TO KNOW!
Managerial Planning, Control, & Performance Evaluation
What happens if
actual sales &
production differ
from projected levels?
Managers can develop a
flexible budget to
compare actual with
projected levels.
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LO 5
Managerial Planning, Control, & Performance Evaluation
What do the terms
“favorable” &
“unfavorable”
variance mean?
Favorable means the
variance will increase
profits; unfavorable
means the variance will
decrease profits.
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LO 6
PREVENTING BUDGET
MANIPULATION
Overview & Basic Concepts
Companies can provide incentives for people to
report truthfully & be rewarded for both honest
estimates & good performance.
In practice, companies pressure employees to
achieve continually more difficult targets.
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Managerial Planning, Control, & Performance Evaluation
CHAPTER 9
THE END
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