Budgeting Case
A budget
A strategic planning: long term, senior manager (type, markets to operate in, how business/activities be financed, corporate strategy)
Purposes: planning
facilitating communication and coordination
allocating resources
controlling profit and operations
evaluate performance and providing incentives
Responsibility accounting: the practice of holding managers responsible for the activities and performance in their area of the business
Managers of various departments: develop the budget
estimates themselves and held responsible
Centers: sub-unit of organisation, cost/revenue/profit/investment centres
Type determines type of financial results for which a manager is held accountable
THE MASTER BUDGET OR THE ANNUAL BUDGET
is a comprehensive set. cover all activities. consists of several interdependent budget
include
OPERATING BUDGET: sales budget and the various cost budget
FINANCIAL BUDGET: Budgeted S of FPerf, FPos, cash budget and capital expenditure budget
Develop the specific time periods or rolling budget (continuous budgets)
Must commence w an understanding of the strategy of the firm, formulated in the light of the strategic plans, based on various assumptions abt the competitive environment and the economic environment
Steps in preparing the master budget
1.Basic data (sales budget-cash collection from customers, purchase B-disbursement for purchases, operating expense B-disbursement for operating expense)
2.Operating budget (the sales budget and the cost budget. For the cost budget, depending on the nature of the business. If it is a manufacturing firms, there involved a production budget for direct materials, direct labour and overheads; also there involved the