Kế toán, kiểm toán - Chapter 9: Profit planning and budgeting

1Profit Planning and BudgetingCHAPTER 9© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. PowerPoint Presentation by LuAnn BeanProfessor of AccountingFlorida Institute of TechnologyManagerial Accounting 11E Maher/Stickney/Weil2CHAPTER GOALThis chapter shows how a short-term operating budget is established and how it fits into the overall plan for achieving organization goals. You will also learn how ethical issues affect the budgeting and performance evaluation process. ☼☼3BUDGET: DefinitionIs a plan of the resources needed to carry out tasks and meet financial goals.LO 14STRATEGIC PLANNINGCompanies start the strategic planning process by stating their critical success factors, that is the most important things the company must do for success. Companies build on critical success factors to expand operations.LO 15MASTER BUDGETA master budget is part of the overall organization plan for the next year and includes:Organizational goalsStrategic long-range profit planMaster budget (a tactical short-range profit plan)LO 16ORGANIZATIONAL GOALS: DefinitionAre broad objectives management establishes and employees work to achieve.LO 17STRATEGIC LONG-RANGE PROFIT PLANAny plan that focuses on the intermediate or distant future is stated in broad termsCost controlOptimize contribution from existing product lines by holding product cost increases to less than the general rate of inflationMarket shareMaintain market share by providing a level of service and quality comparable to top competitorsLO 18LO 1Budgeting is an information gathering process where information comes from both internal and external sources. EXHIBIT 9.19PARTICIPATIVE BUDGETING: DefinitionIs a process of gathering information from lower- and middle-management employees.LO 210RESPONSIBILITY CENTER: DefinitionIs a division, department responsible for managing a particular group of activities in the organization.LO 311RESPONSIBILITY CENTERS: Four TypesCost centersExample: Manufacturing departmentsManagers responsible for managing costsEngineered cost centers: well-established input/output relationsProduction departmentsDiscretionary cost centers: input/output relations not well specifiedResearch departmentsRevenue centersExample: Marketing departmentsManagers responsible for revenuesLO 3Continued12RESPONSIBILITY CENTERS: Four TypesProfit centersManagers responsible for managing costs and revenuesInvestment centersExample: Corporate divisionsManagers responsible for costs, revenues, and assetsLO 313Activity CategoryExampleUnitConverts resources into productsDirect laborBatchBatch of same setup, personnelMachine setupsProductSupport a particular product lineDesign workCustomerMeet customer needsCustomer serviceFacility Support entire organizationHuman resourcesESTABLISHING BUDGETS: Using Cost HierarchiesLO 314SALES BUDGETPRODUCTION BUDGETMARKETING BUDGETADMINISTRATIVE BUDGETSPROFIT PLANNING BUDGETLO 4BUDGET PROCESS 15DEVELOPING SALES BUDGETForecasting Sales is the heart of the budgeting process and perhaps the most difficult. Information is sought from many sources.LO 4Sales staffMarket researchersDelphi techniqueTrend analysisEconometric models16EXAMPLE: Victoria’s Gourmet CoffeeVictoria’s Gourmet Coffee is preparing its budget for the year. LO 4ContinuedVGCFive departments are involved in budgeting process. EXHIBIT 9.217VICTORIA’S SALES BUDGETVictoria’s Gourmet Coffee forecasts three levels of sales for budgeting purposes.LO 4VGCUltimately, Victoria’s chose the expected level of sales, 70,000 units @ $6 each, for their budgeting process. EXHIBIT 9.318DEVELOPING PRODUCTION BUDGETProduction budgets begin with Beginning Inventory (BI). They combine this with estimate of units to be sold and desired Ending Inventory (EI) to estimate production.Units Produced = Units to be sold + Desired EI – Units BILO 419LO 4VGCEXHIBIT 9.4Production budgets include direct materials, direct labor, and variable and fixed overhead. 20LO 4ContinuedVGCEXHIBIT 9.5Marketing budgets are comprised of variable (unit) and fixed (customer and facility) costs. 21LO 4ContinuedVGCEXHIBIT 9.6Administrative budgets are comprised of fixed costs, some of which are discretionary. 22LO 4VGCEXHIBIT 9.7Budget Profit plans combine information from all prior budgets to project an estimate of profit. 23What happens if projected profit is not the desired profit?When projected profit does not meet the desired level, managers will seek ways to improve profits.LO 4MANAGERS WANT TO KNOW!What happens if actual sales and production differ from projected levels?Managers can develop a flexible budget to compare actual with projected levels.24LO 5VGCEXHIBIT 9.7Flexible budget based on actual sales volume show higher profit. 25What do the terms “favorable” and “unfavorable” variance mean?Favorable means the variance will increase profits; unfavorable means the variance will decrease profits.LO 526IMPORTANCE OF BUDGETSLO 6Budgets affect both organizational and individual performance. If sales forecasts are too high, excess inventory arises. Forecasts too low lead to lost sales. Individuals are rewarded when performance measures are met.27SUMMARY OF THE MASTER BUDGETThe master budget summarizes management’s plans for the period covered. Preparing the master budget requires the participation of all managerial groups, from local plant and sales managers to the top executives of the firm and the board of directors. Once management adopts the budget, it becomes the major planning and control instrument. Master budgets are almost always static budgets; that is, they consider the likely results of the operations at the one level of operations specified in the budget. Computerizing the process makes it less costly to develop multiple master budgets that take into account various uncertainties facing the firm, such as market conditions, material prices, labor difficulties, and government regulations.LO 728IMPLICATIONS FOR INCENTIVE PLANSTypical implications for developing good incentive plans include:developing incentive methods that provide rewards for both accurate forecasts and good performance. rewards that are positively related to forecasted sales to give incentives to forecast high rather than low. additional rewards for employees who beat the forecast and penalties for results worse than forecast.LO 829End of CHAPTER 9