Textbook Notes (368,317)
Canada (161,798)
Accounting (533)
ACC 406 (130)
Chapter 9

ACC406 Chapter 9.doc

5 Pages
126 Views
Unlock Document

Department
Accounting
Course
ACC 406
Professor
Donna Zathy
Semester
Fall

Description
ACC406 - Chapter 9 • Budgeting and Planning and Control o Planning = Looking ahead to see what actions should be taken to realize particular goals o Control = Looking backward, determining what actually happened and comparing it with the previously planned outcomes  Can be used to adjust the budget, looking forward once more o Budgets = Financial plans for the future, key component of planning  Identify objectives and the actions needed to achieve them o Strategic Plan = Identifies strategies for future activities and operations, generally covering at least 5 years  Needed before a budget is prepared  Organization can translate overall strategy into long and short- term objectives • These objectives form the basis of the budget o Advantages of Budgeting  1) It forces managers to plan • Encourages managers to develop an overall direction for the organization, foresee problems, and develop future policies  2) It provides information that can be used to improve decision making  3) It provides a standard for performance evaluation • Control is achieved by comparing actual results with budgeted results on a periodic basis  4) It improves communication and coordination • Budgets formally communicate the plans of the organization to each employee • Master Budget o comprehensive financial plan for the organization as a whole o Typically for one year, corresponding to the fiscal year of the company o Broken down into quarterly and monthly budgets o Continuous Budget = Moving 12-month budget  As a month expires in the budget, an additional month in the future is added so that the company always has a 12-month plan on hand o Directing and Coordinating  Most organizations prepare the master budget for the coming year during the last four or five months of the current year  Budget Committee = Reviews the budget, provides policy guidelines and budgetary goals, resolves differences that arise as the budget is prepared, approves the final budget, and monitors the actual performance of the organization  Budget Director = Person responsible for directing and coordinating the organization's overall budgeting process o Major Components of the Master Budget  Can be divided into operating and financial budgets • Operating Budgets = Income-generating activities of a firm (e.g., sales, production, and finished goods inventory) o Outcome of operating budgets is budgeted income statement • Financial Budgets = Inflows and outflows of cash and the overall financial position o Outcome of financial budgets is budgeted balance sheet  Can also include a Capital Budget • Plan for acquiring long-term assets (assets that have a time horizon that extends beyond the one-year operating period) • Preparing the Operating Budget o Consists of a budgeted income statement  Used to prepare an estimate of operating income (Needs information from all 8 Schedules)  Operating income is not equivalent to the net income of a firm • To get net income, interest expense and taxes much be subtracted from operating income o Has the following supporting schedules  1) Sales Budget • Approved by the budget committee • Describes expected sales in units and dollars • Basis for all other operating budgets, and most financial budgets (must be as accurate as possible) • First step in creating a sales budget is to develop the sales forecast o Can use the bottom-up approach (requires individual salespeople to submit sales predictions) o Accuracy of sales forecast can be improved by considering other factors (e.g., general economic climate, competition, etc.)  2) Production Budget • Tells how many units must be produced to meet sales needs and to satisfy ending inventory requirements • Units to be Produced = Expected Unit Sales + Units in Desired Ending Inventory (EI) - Units in Beginning inventory (BI) • Beginning Inventory for one quarter is ALWAYS equal to the ending inventory of the previous quarter  3) Direct Materials Purchases Budget • Tells the amount and cost of raw materials to be purchased in each time period • Company needs to prepare a separate Direct Materials Purchases Budget for each type of raw material • Purchases = Direct Materials Needed for Production + Direct Materials in Desired Ending Inventory - Direct Materials in Beginning Inventory • Quantity of direct materials in inventory is determined by the firm's inventory policy  4) Direct Labor Budget • Shows the total direct labor hours and the direct labor cost needed for the number of units in the production budget • Budgeted hours of direct labor are determined by the relationship between labor and output  5) Overhead Budget • Shows the expected cost of all production costs other than direct materials and direct labor • Companies use direct labor hours as the driver for overhead  6) Selling and Administrative Expenses Budget •
More Less

Related notes for ACC 406

Log In


OR

Join OneClass

Access over 10 million pages of study
documents for 1.3 million courses.

Sign up

Join to view


OR

By registering, I agree to the Terms and Privacy Policies
Already have an account?
Just a few more details

So we can recommend you notes for your school.

Reset Password

Please enter below the email address you registered with and we will send you a link to reset your password.

Add your courses

Get notes from the top students in your class.


Submit