Kế toán, kiểm toán - Chapter 10: Budgetary planning and control

Slide 10-2CHAPTER 10Budgetary Planning and ControlLearning objective 1: Discuss the use of budgets in planning and control.Slide 10-3Budgetary Planning and ControlBudgets are the formal documents that quantify a company’s plans for achieving its goalsFor many companies, the entire planning and control process is built around budgets.Slide 10-4Use of Budgets in Planning and ControlPlanningBudgets enhance communication and coordinationThe process of developing a formal plan forces managers to consider their goals and objectives and to specify means of achieving themBudgets become the vehicle for communicating information about where the company is headingLearning objective 1: Discuss the use of budgets in planning and control.Slide 10-5Use of Budgets in Planning and ControlControlBudgets provide a basis for evaluating performance Control makes sure the company is heading in the proper direction and operating efficientlyTo control a company, it is essential to assess the performance of managers and their operations for which they are responsibleLearning objective 1: Discuss the use of budgets in planning and control.Slide 10-6Use of Budgets in ControlOften performance evaluation is carried out by comparing actual with planned or budgeted performanceSignificant deviations from planned performance associated with three potential causes:1. The budget was poorly conceived2. Conditions have changed3. Managers have done a particularly good or poor job managing operationsLearning objective 1: Discuss the use of budgets in planning and control.Slide 10-7Which of the following statements regarding budgets is false?They are formal documents that quantify a company’s plans.They enhance communication and coordination.They are useful in planning but not in control.They provide a basis for evaluating performance.Answer: c They are useful in planning AND in controlTest Your Knowledge 1Learning objective 1: Discuss the use of budgets in planning and control.Slide 10-8Developing the BudgetBudgets are prepared for:DepartmentsDivisions of a companyFor the entire companyOften the group within a company that is responsible for approval of the various budgets is the budget committeeLearning objective 1: Discuss the use of budgets in planning and control.Slide 10-9Developing the BudgetThe budget committee consists of senior managersThe budget committee works with departments to develop realistic plans that are consistent with overall company goalsIn some cases the budget committee may impose a budget without soliciting input from department managersLearning objective 1: Discuss the use of budgets in planning and control.Slide 10-10Developing the BudgetIn a top-down approach budgets are developed at higher operational levels without substantial input from lower level managersIn a bottom-up approach, lower level managers are the primary source of information used in setting the budgetLearning objective 1: Discuss the use of budgets in planning and control.Slide 10-11Budget Time PeriodManagers must decide on an appropriate budget periodDepending on needs, budgets can be prepared for a variety of time periodsLong run budgets are prepared for a three or even a five year periodShort run budgets may cover a month, a quarter, or a yearGenerally, the longer the time period, the less detailed the budgetLearning objective 1: Discuss the use of budgets in planning and control.Slide 10-12Five-Year BudgetsLearning objective 1: Discuss the use of budgets in planning and control.Slide 10-13Zero Base BudgetingA common starting point in budgeting is previous period revenues and costsZero base requires budgeted amounts to be justified by each department at the start of each periodThis results in a fresh consideration for the validity of budgeted amountsIt is a time consuming and expensive processNot widely used by business enterprisesLearning objective 1: Discuss the use of budgets in planning and control.Learning objective 2: Prepare the budget schedules that make up a master budget.Slide 10-14The Master BudgetThe master budget is a comprehensive planning document that incorporates a number of individual budgetsTypically, it includes budgets for sales, production, direct materials, direct labor, manufacturing overhead, selling and administrative expense, capital acquisitions, and cash receipts and disbursementsAlso includes budgeted income statement and balance sheetSlide 10-15Master BudgetLearning objective 2: Prepare the budget schedules that make up a master budget.Slide 10-16Sales BudgetThe first step involved preparation of sales forecasts and a sales budgetPrepared first because an estimate of sales is needed for other budgetsCompanies use numerous methods to estimate sales, includingEconomic modelsSales trendsTrade journals, among othersLearning objective 2: Prepare the budget schedules that make up a master budget.Sales BudgetBudgeted sales revenue: Budgeted sales (units) x budgeted sales priceSlide 10-17Learning objective 2: Prepare the budget schedules that make up a master budget.Production BudgetThe production budget can be developed once the sales budget has been preparedIn deciding how much to produce, managers must take into account how much they expect to sell, how much is in beginning inventory, and how much they want in ending inventorySlide 10-18Learning objective 2: Prepare the budget schedules that make up a master budget.Production BudgetThe quantity that must be produced is calculated using the following formula Slide 10-19Finished units to be produced=Expected sales in units+Desired ending inventory of finished goods-Beginning inventory of finished unitsLearning objective 2: Prepare the budget schedules that make up a master budget.Slide 10-20Production BudgetPreston Joystick budget plan, Quarter 1Ending inventory of finished goods = 10% of next quarter’s sales (25,000 X 10% = 2,500)Budgeted unit sales,Q1 = 21,000 unitsBudgeted unit sales, Q2 = 25,000 unitsBeginning inventory Q1 = 2,100 unitsBudget finished units to be producedLearning objective 2: Prepare the budget schedules that make up a master budget.Production BudgetLearning objective 2: Prepare the budget schedules that make up a master budget.Slide 10-21Slide 10-22Mason Manufacturing expects to sell 10,000 units in the first quarter and 14,000 in the second quarter. The company desires beginning inventory equal to 20% of sales for the coming quarter. Finished goods on hand at the start of the first quarter equals 2,000 units. How many units should be produced in the first quarter?14,000 units16,000 units10,800 units12,000 unitsAnswer: c10,800 units = 10,000 + 2,800 – 2,000Test Your Knowledge 2Learning objective 2: Prepare the budget schedules that make up a master budget.Direct Material Purchases BudgetThe amount of direct materials that must be purchased depends on The amount needed for production, andThe amount needed for ending inventoryThe amount that must be purchased can be calculated from the following formulaSlide 10-23Required purchases of direct materials=Amount required for production+Desired ending inventory of direct materials-Beginning inventory of direct materialsLearning objective 2: Prepare the budget schedules that make up a master budget.Direct Material Purchases BudgetLearning objective 2: Prepare the budget schedules that make up a master budget.Slide 10-24Slide 10-25Budgeted production: Q1= 50,000; Q2= 60,000Parts per unit= 3 , cost per part= $5 Ending inventory = 20% of next month’s productionTest Your Knowledge 3Number of parts required for Q1 production is:50,000150,00060,000180,000Answer: bQ1 production 50,000 x 3 parts per unit = 150,000Learning objective 2: Prepare the budget schedules that make up a master budget.Slide 10-26Budgeted production: Q1= 50,000; Q2= 60,000Parts/unit= 3, cost/part= $5 Ending inventory = 20% of next month’s required partsTest Your Knowledge 4Desired ending inventory of parts for Q1 in units is:10,00012,00030,00036,000Answer: dQ2 parts = 60,000 x 3 = 180,000 x 20% = 36,000Learning objective 2: Prepare the budget schedules that make up a master budget.Slide 10-27Budgeted production: Q1= 50,000; Q2= 60,000Parts/unit= 3, cost/per part= $5Ending inventory = 20% of next month’s required partBeginning parts inventory, Q1= 30,000 unitsTest Your Knowledge 5Budgeted cost of purchases for Q1 is:$750,000$900,000$780,000$1,650,000Answer: c156,000 parts to purchase = 150,000 + 36,000 – 30,000156,000 parts to purchase x $5 cost = $780,000Learning objective 2: Prepare the budget schedules that make up a master budget.Slide 10-28Direct Labor BudgetThe direct labor budget presents the direct labor cost by quarterDirect labor cost is calculated by multiplying the number of units produced each quarter by the labor hours per unit and the rate per hourThe direct labor budget can be used to budget the number of employees neededLearning objective 2: Prepare the budget schedules that make up a master budget.Slide 10-29Direct Labor BudgetLearning objective 2: Prepare the budget schedules that make up a master budget.Slide 10-30Manufacturing Overhead BudgetThe manufacturing overhead budget separates variable and fixed costsThe cost per unit of production of each variable cost item is multiplied by the quantity produced each quarterThe fixed costs are identical each quarter except for the amount of depreciationBudget information is also needed for selling and administrative expenses Learning objective 2: Prepare the budget schedules that make up a master budget.Slide 10-31Manufacturing Overhead BudgetLearning objective 2: Prepare the budget schedules that make up a master budget.Slide 10-32Selling and Administrative Expense BudgetLearning objective 2: Prepare the budget schedules that make up a master budget.Slide 10-33Budgeted Income StatementMuch of the information contained in the budgets already described is utilized in the preparation of a budgeted income statementThe sales figures come directly from the sales budgetCost of goods sold requires a calculation of the unit cost of productionLearning objective 2: Prepare the budget schedules that make up a master budget.Slide 10-34Budgeted Income StatementCalculation of the unit cost of productionThe direct materials budget indicates the materials cost per unitThe direct labor budget indicates the labor cost per unitThe manufacturing overhead budget indicates the overhead cost per unitLearning objective 2: Prepare the budget schedules that make up a master budget.Slide 10-35Budgeted Income StatementLearning objective 2: Prepare the budget schedules that make up a master budget.Slide 10-36Capital Acquisitions BudgetFor decisions with respect to long-lived assets such as plant and equipmentIncremental cash flows along with net present value and internal rate of return are used for evaluationThe final list of approved projects is documented in the capital acquisitions budgetLearning objective 2: Prepare the budget schedules that make up a master budget.Slide 10-37Capital Acquisitions BudgetLearning objective 2: Prepare the budget schedules that make up a master budget.Slide 10-38Cash BudgetManagers must plan for the amount and timing of cash flowsCareful planning of receipts and disbursements is necessary to:Anticipate cash shortages and arrange to borrow fundsAnticipate cash surpluses and seek productive usesLearning objective 2: Prepare the budget schedules that make up a master budget.Slide 10-39Which of the following items does not require a cash outflow?SalariesPurchase of raw materialsAdvertisingDepreciationAnswer: dDepreciation Test Your Knowledge 6Learning objective 2: Prepare the budget schedules that make up a master budget.Slide 10-40Estimate Cash CollectionsTo prepare an estimate of cash collections, management must determine the percent of credit sales revenue that is collected in the period of sale and the percent collected in the subsequent periodThe percentage can be estimated based on past collection experienceLearning objective 2: Prepare the budget schedules that make up a master budget.Slide 10-41Estimate Cash DisbursementsTo prepare an estimate of cash disbursements, management must determine the percent of material purchases that is paid in the period of purchase and the percent that is paid in the subsequent periodThe timing of all other cash disbursements must also be consideredLearning objective 2: Prepare the budget schedules that make up a master budget.Slide 10-42Estimate Cash DisbursementsIn preparing a cash budget, it is important to remember that some expenses do not require cash outlaysFor example, depreciation is a part of manufacturing overhead but does not require a current outlay of cashAnother example of a noncash expense is the amortization of prepaid insuranceLearning objective 2: Prepare the budget schedules that make up a master budget.Slide 10-43Cash BudgetLearning objective 2: Prepare the budget schedules that make up a master budget.Slide 10-44Mason Manufacturing expects sales of $100,000 in the first quarter and $140,000in the second quarter. The company collects 70% of sales in the quarter sold and 30% in the subsequent quarter. What are expected cash collections in the second quarter?$128,000$30,000$98,000$142,000Answer: a$128,000 = (.3 * $100,000) + (.7 * $140,000)Test Your Knowledge 7Learning objective 2: Prepare the budget schedules that make up a master budget.Slide 10-45Budgeted Balance SheetThe last component of the master budget is the budgeted balance sheetThis is simply a planned balance sheetSometimes called a pro forma balance sheetManagers can use this budget to assess the effect of their planned decisions on the future financial position of the firmLearning objective 2: Prepare the budget schedules that make up a master budget.Slide 10-46Budgeted Balance SheetLearning objective 2: Prepare the budget schedules that make up a master budget.Slide 10-47Use of Computers in the Budget Planning ProcessBudget committee may review a budget and decide it is inconsistent with company goalsThis conclusion may lead managers to explore a variety of actions that affect future costs and revenuesIf managers decide to make changes, they must also revise the budgetLearning objective 2: Prepare the budget schedules that make up a master budget.Slide 10-48Use of Computers in the Budget Planning ProcessComputers are very useful in this situationMost companies define the budget relationships in a computer modelWith computerized budget information, an item can be changed and the computer can recalculate that budget and any other budget affected by the changeLearning objective 2: Prepare the budget schedules that make up a master budget.Slide 10-49Spreadsheets for BudgetingLearning objective 3: Explain why flexible budgets are needed for performance evaluation, and discuss the conflict between the planning and control uses of budgets.Slide 10-50Budgetary ControlBudgets facilitate control by providing a standard for evaluationThe standard is the budgeted amount, against which actual results are comparedDifferences between budgeted and actual amounts are referred to as budget variancesLearning objective 3: Explain why flexible budgets are needed for performance evaluation, and discuss the conflict between the planning and control uses of budgets.Slide 10-51Static and Flexible BudgetsIn evaluating performance, care must be taken to make sure that the level of activity used in the budget is equal to the actual level of activityA static budget is not adjusted for the actual level of productionA more appropriate analysis would make use of a flexible budgetLearning objective 3: Explain why flexible budgets are needed for performance evaluation, and discuss the conflict between the planning and control uses of budgets.Slide 10-52Flexible BudgetsA flexible budget is a set of budget relationships that can be adjusted to various activity levelsThus, flexible budgets take into account the fact that when production increases or decreases, variable costs can changeFixed costs, however, stay the sameLearning objective 3: Explain why flexible budgets are needed for performance evaluation, and discuss the conflict between the planning and control uses of budgets.Slide 10-53Flexible BudgetLearning objective 3: Explain why flexible budgets are needed for performance evaluation, and discuss the conflict between the planning and control uses of budgets.Slide 10-54A ____ budget is not adjusted for the actual level of production.StaticFlexiblePro formaNone of the aboveAnswer: aStaticTest Your Knowledge 8Learning objective 3: Explain why flexible budgets are needed for performance evaluation, and discuss the conflict between the planning and control uses of budgets.Slide 10-55Investigating Budget VariancesSignificant deviations from the budget, called budget variances, may have three causesThe budget may not have been well conceivedConditions may have changedManagers may have performed their jobs particularly well or poorlyLearning objective 3: Explain why flexible budgets are needed for performance evaluation, and discuss the conflict between the planning and control uses of budgets.Slide 10-56Investigating Budget VariancesUsing a management by exception approach, only exceptional variances are investigatedGenerally, variances that are large in absolute dollars or relative to budgeted amounts are considered exceptionalIt is important to point out that both exceptional “unfavorable” and exceptional “favorable” variances should be investigatedLearning objective 3: Explain why flexible budgets are needed for performance evaluation, and discuss the conflict between the planning and control uses of budgets.Slide 10-57“Unfavorable” Budget VarianceLearning objective 3: Explain why flexible budgets are needed for performance evaluation, and discuss the conflict between the planning and control uses of budgets.Slide 10-58Conflict in Planning and Control Uses of BudgetsBudgets are used for both planning and controlWith respect to planning, they communicate company goals and help coordinate various activitiesWith respect to control, they focus the attention of managers on meeting or beating budget targetsThere are inherent conflicts when budgets are used for both planning and controlLearning objective 3: Explain why flexible budgets are needed for performance evaluation, and discuss the conflict between the planning and control uses of budgets.Slide 10-59Issues With Budget-Based CompensationThe following slide helps understanding of the two related problemsThe illustration shows a common budget based compensation scheme in which a manager receives a “hurdle” bonus once a target is hitPerformance better than 80% of budgeted profit results in additional “variable” bonusLearning objective 3: Explain why flexible budgets are needed for performance evaluation, and discuss the conflict between the planning and control uses of budgets.Slide 10-60Common Budget-based Compensation SchemeLearning objective 3: Explain why flexible budgets are needed for performance evaluation, and discuss the conflict between the planning and control uses of budgets.Slide 10-61Issues With Budget-Based CompensationThe first problem is that managers have incentive to pad a budget and create budget slackBudget slack is a budget with targets that are easy to achieveThe lower the budget target, the more likely it is that managers will receive the hurdle and variable bonusManagers can create slack by lowering sales and increasing cost forecastsLearning objective 3: Explain why flexible budgets are needed for performance evaluation, and discuss the conflict between the planning and control uses of budgets.Slide 10-62Issues With Budget-Based CompensationThe second problem relates to the fact that managers who are evaluated may have an incentive to shift income from one period to anotherConsider a manager who estimates that it is unlikely that the target will be metThe manager has an incentive to shift income from a future period to the current periodLearning objective 3: Explain why flexible budgets are needed for performance evaluation, and discuss the conflict between the planning and control uses of budgets.Slide 10-63Issues With Budget-Based CompensationThe best that can be done to mitigate the conflict between the planning and control uses of budgets is to assure managers that their performance in comparison to the budget will be fairly evaluated and compensatedManagers should be confident that they will be allowed to comment on the real causes of budget variances and tell their side of the storyLearning objective 3: Explain why flexible budgets are needed for performance evaluation, and discuss the conflict between the planning and control uses of budgets.Slide 10-64Budget PaddingLearning objective 3: Explain why flexible budgets are needed for performance evaluation, and discuss the conflict between the planning and control uses of budgets.Slide 10-65Copyright © 2016 John Wiley & Sons, Inc. 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