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Managerial Accounting: An Introduction To Concepts, Methods, And Uses

Managerial Accounting: An Introduction To Concepts, Methods, And Uses. Chapter 9 Profit Planning and Budgeting. Maher, Stickney and Weil. Learning Objectives (Slide 1 of 2). Explain the use of a budget as a tool for planning and performance evaluation.

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Managerial Accounting: An Introduction To Concepts, Methods, And Uses

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  1. Managerial Accounting: An Introduction To Concepts, Methods, And Uses Chapter 9 Profit Planning and Budgeting Maher, Stickney and Weil

  2. Learning Objectives (Slide 1 of 2) • Explain the use of a budget as a tool for planning and performance evaluation. • Explain how a budget can affect employee motivation. • Compare the four types of responsibility centers. • Describe the master budget.

  3. Learning Objectives (Slide 2 of 2) • Explain the difference between a flexible budget and master budget. • Describe ethical dilemmas in budgeting. • List the components of a comprehensive master budget. (Appendix 10.1) • Describe an incentive model for accurate reporting. (Appendix 10.2)

  4. Organizational Plan • Define its three parts

  5. Describe the Master Budget

  6. Interaction in Developing the Master Budget Organizational Individual Organizational Goals Long-Range Strategic Plan Individual Goals & Values Anticipated Conditions for Budget Period Individ. Beliefs & Expectations Master Budget Strategic Evaluation Actual Period Reported Results Periodic Performance Evaluation

  7. Employee Participation in Developing Budgets • Define Participative budgeting –

  8. Performance Evaluation • Budgets provide estimates of expected performance • Comparing budgeted with actual results provides a basis for evaluating performance • Budgets must be prepared for individual responsibility centers in order to use them to evaluate performance

  9. Responsibility Centers(Slide 1 of 2) • Define A responsibility center

  10. Responsibility Centers(Slide 2 of 2) • Responsibility centers can be classified as follows (continued): • Profit centers - mgmt is responsible for both revenues and costs • Investment centers - mgmt is responsible for revenues, costs, and assets

  11. Discuss Flexible Budgets • Shows the expected relation between costs and volumes • Has two components, what are they?

  12. Explain Cost Hierarchies

  13. Forecasting Sales • Developing the master budget starts with forecasting sales • Various methods and sources used to obtain sales forecasts include: • Sales staff • Market research • Delphi technique • Trend analysis • Econometric Models

  14. Production Budget (Slide 1 of 3) • The production budget is based on the sales budget and estimates of beginning and desired ending inventories • Production is calculated as follows: Number of Units to Be Sold +Units in Ending Inventory -Units in Beginning Inventory Units to Be Produced

  15. Production Budget (Slide 2 of 3) After determining the number of units to be produced, we can budget for the following: • Direct materials - traceable to units produced and almost always a variable cost • Direct labor - traceable to units produced; usually a variable cost but could be a fixed cost

  16. Production Budget (Slide 3 of 3) • We assume direct labor is a variable cost in this chapter • Manufacturing overhead - typically has both variable and fixed components; variable overhead varies with units produced, fixed overhead gives a firm production capacity

  17. Describe the Marketing and Administrative Budgets

  18. Discretionary Fixed Costs • Many “fixed” costs are really discretionary costs • They are budgeted as fixed costs but if, for example, the economic conditions look bad, these costs can be reduced • Examples: maintenance, advertising • Discretionary fixed costs should be distinguished from committed fixed costs, like rent on a factory building, which are required to run the firm

  19. Comment on the Budgeted Income Statement

  20. Discuss the Need for Accurate Forecasts

  21. Using the Master Budget • What does the master budget include?

  22. Compare Flexible and Master Budgets

  23. Budgeting in Nonprofit organizations • The master budget is important in nonprofit organizations • Used as a basis for authorizing the expenditure of funds • In governmental units, the budget is a legal authorization for expenditure • Penalties for exceeding authorized expenditures can be severe

  24. Review Ethical Issues in Budgeting

  25. Review Ethical Issues in Budgeting

  26. If you have any comments or suggestions concerning this PowerPoint Presentation for Managerial Accounting, An Introduction To Concepts, Methods, And Uses, please contact: • Dr. Michael Blue, CFE, CPA, CMA • blue@bloomu.edu Bloomsburg University of Pennsylvania

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