ACCOUNTING AND CONTROL
8-1

Budgeting for Planning and Control
8
8-2

The Role of Budgeting in Planning and Control
The Master Budget and
Its Interrelationships
1
8-3

The Role of Budgeting in Planning and Control 1
8-4

The Role of Budgeting in Planning and Control 1
8-5

The Role of Budgeting in Planning and Control 1
The master budget starts with the sales forecast, which is basis for the sales budget.
All other operating and most financial budgets are generated from the sales budget.
8-6

Preparing the Operating Budget
The first budget is the sales budget which is based on the sales forecast.
Schedule 1 (in thousands)
2
Starting point for Production Budget
Starting point for Marketing Expense Budget
Goes to Budgeted Income Statement
8-7

Preparing the Operating Budget
Schedule 2 (in thousands)
2
Starting point for Direct Materials Purchases Budget
Starting point for Direct Labor Budget
8-8

Preparing the Operating Budget
Schedule 3 (in thousands)
2
Goes to Cost of Goods Sold Budget
8-9

Preparing the Operating Budget
Schedule 4 (in thousands)
2
Starting point for Overhead Budget
Goes to Cost of Goods Sold Budget
8-10

Preparing the Operating Budget
Schedule 5 (in thousands)
2
Goes to Cost of Goods Sold Budget
8-11

Preparing the Operating Budget
Schedule 6 (in thousands)
2 a Amounts taken from Schedule 3.
b Amounts taken from Schedule 4.
c Amounts taken from Schedule 5.
d Budgeted fixed overhead (Schedule 5)/Budgeted direct labor hours (Schedule 4) = $1,280/240 = $5.33.
Goes to Cost of Goods Sold Budget
8-12

Preparing the Operating Budget
Schedule 7 (in thousands)
2
*Production needs

$0.01 = 416,000

$0.01.
Goes to Budgeted Income Statement
8-13

Preparing the Operating Budget
Schedule 8 (in thousands)
2
Goes to Budgeted Income Statement
8-14

Preparing the Operating Budget
Schedule 9 (in thousands)
2
Goes to Budgeted Income Statement
8-15

Preparing the Operating Budget
Schedule 10 (in thousands)
2
Goes to Budgeted Income Statement
8-16

Preparing the Operating Budget
Schedule 11 (in thousands)
2
8-17

Preparing the Financial Budget
Cash flows are critical to managing a business and the lifeblood of an organization. Therefore, the cash budget is one of the most important budgets in the master budget.
The Cash Budget
3
8-18

Preparing the Financial Budget
Schedule 12 (in thousands)
3
(Continued on next slide)
8-19

Preparing the Financial Budget
Schedule 12 (in thousands)
(Continued from previous slide)
3
(Continued on next slide)
8-20

Preparing the Financial Budget
Schedule 12 (in thousands)
(Continued from previous slide)
3
8-21

Preparing the Financial Budget 3
8-22

Preparing the Financial Budget
Schedule 13 (in thousands)
3 a Ending balance from Schedule 12.
b 30 percent of fourth-quarter credit sales
(0.30

$800,000)
—see Schedules 1 and 12.
c From Schedule 3 (5,000,000 lbs.

$0.01).
d From Schedule 6.
e From the December 31, 2006, balance sheet.
f December 31, 2006, balance ($9,000,000) plus new equipment acquisition of $600,000 (see the 2006 ending balance sheet and Schedule
12).
g From the December 31, 2006, balance sheet and
Schedules 5, 8, and 10
($4,500,000 + $800,000 +$20,000 + $40,000).
h 20 percent of fourth-quarter purchases
(0.20

$520,000)
—see Schedules 3 and 12.
i From the December 31, 2006, balance sheet.
j $6,825,000 + $894,000 (December 31, 2006, balance plus net income from Schedule 11).
8-23

Flexible Budgets for Planning and Control 4
8-24

Flexible Budgets for Planning and Control
Performance Report: Quarterly Production Costs
(in thousands)
4
8-25

Flexible Budgets for Planning and Control 4
Flexible budgets provide expected costs for a range of activity or the actual level of activity.
8-26

Flexible Budgets for Planning and Control
Flexible Production Budget (in thousands)
4
8-27

Flexible Budgets for Planning and Control 4
Managers can locate possible problem areas by examining the variances revealed on a performance report that compares budgeted costs for the actual level of activity to the actual costs for the same level.
8-28

Flexible Budgets for Planning and Control
Actual versus Flexible Performance Report:
Quarterly Production Costs (in thousands)
4
8-29

Flexible Budgets for Planning and Control
Managerial Performance Report:
Quarterly Production (in thousands)
4
8-30

Flexible Budgets for Planning and Control
Managerial Performance Report:
Quarterly Production (in thousands)
4
8-31

Flexible Budgets for Planning and Control
Managerial Performance Report:
Quarterly Production (in thousands)
4
8-32

Flexible Budgets for Planning and Control
Activity Flexible Budget
4
8-33

Flexible Budgets for Planning and Control
Activity-Based Performance Report
4
The activity-based performance report compares the budgeted costs for actual activity usage with the actual costs.
8-34

Activity-Based Budgets
The activity-based budget begins with output and then determines the resources necessary to created that output. It works backwards from activities and their drivers to the underlying costs.
5
8-35

Activity-Based Budgets
Traditional Budget for the Secure-Care Department
5
8-36

Activity-Based Budgets
Flexible Budget for the Secure-Care Department
5
8-37

Activity-Based Budgets
Activity-Based Budget for the Secure-Care Department
5
8-38

The Behavioral Dimension of Budgeting 6
 Frequent feedback on performance
 Monetary and nonmonetary incentives
 Participative budgeting
 Realistic standards
 Controllability of costs
 Multiple measures of performance
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8-40