Budgeting Process - process of planning future business actions and expressing them as formal plans Budget - formal statement of company’s plans in dollars Budgetary control process- management’s use of budgets to see that planned objectives are met Benefits of Budgeting - ON TEST Plan: focuses on future opportunities and threats Control - provides benchmark for evaluating performance Coordinate - activities of all employees and departments to work toward to company’s overall goals Communicate - management specific action plan to all employees Motivate - budgeting performance levels to provide goals for employees to attain or exceed Budgeting and Human Behavior Can by a positive motivating force when goals are challenging but attainable, employees affected help prepare budget, evaluations offer opportunities to explain differences between actual and budgeted amounts Potential negative outcomes are - pressure to meet results can result in unethical behavior or fraud, employees understating sales budgets and overstate expense budgets to allow a cushion, employees spend budgets on unnecessary item to ensure budget is not reduced next period Budget Reporting and Timing Continuous budgeting applied by preparing rolling budgets Continually revise budgets as time passes Rolling budget - company revises entire set of budgets by adding new quarterly budget to replace the quarter just elapsed Master Budget Components - Chart on Test Computing Production Requirements - manufacturer prepares a production budget, which shows the number of units to be produced in a period Based on the unit sales projected in the sales budget, along with inventory considerations. Formula on test Doesn’t show costs, always expressed in units of product Production Budget - based on the unit sales projected in the sales budget, along with inventory considerations Computing Materials to be Purchased - direct materials budget is based on production budget, expressed in costs Direct Materials Budget - shows budgeted costs for direct materials that need to be purchased to satisfy the estimated production for the period Computing Cost of Direct Labor - based on production budget, Expressed in costs Direct Labor Budget - shows budgeted costs for direct labor that's needed to satisfy the estimated production for the period Factory Overhead Budget - shows budgeted costs for factory overhead that are needed to complete the estimated production for the period Product Cost Per Unit - compute this from three manufacturing budgets - (direct materials, direct labor, and factory overhead) Cost of Goods Sold Budget - Product cost per unit is used to prepare the cost of goods sold budget and the budgeted income statement Capital Expenditures Budget - reports expected cash receipts and cash payments related to the sale and purchase of plant assets Cash Budget - Financing Budget - shows budgeted cash receipts and cash payments during the budget period Loan Activity

Chapter 22 - Accounting

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