Budgeting Case

A budget

A strategic planning: long term, senior manager (type, markets to operate in, how business/activities be financed, corporate strategy)

Purposes: planning

facilitating communication and coordination

allocating resources

controlling profit and operations

evaluate performance and providing incentives

Responsibility accounting: the practice of holding managers responsible for the activities and performance in their area of the business

Managers of various departments: develop the budget estimates themselves and held responsible

Centers: sub-unit of organisation, cost/revenue/profit/investment centres

Type determines type of financial results for which a manager is held accountable

THE MASTER BUDGET OR THE ANNUAL BUDGET

is a comprehensive set. cover all activities. consists of several interdependent budget

include

OPERATING BUDGET: sales budget and the various cost budget

FINANCIAL BUDGET: Budgeted S of FPerf, FPos, cash budget and capital expenditure budget

Develop the specific time periods or rolling budget (continuous budgets)

Must commence w an understanding of the strategy of the firm, formulated in the light of the strategic plans, based on various assumptions abt the competitive environment and the economic environment

Steps in preparing the master budget

1.Basic data (sales budget-cash collection from customers, purchase B-disbursement for purchases, operating expense B-disbursement for operating expense)

2.Operating budget (the sales budget and the cost budget. For the cost budget, depending on the nature of the business. If it is a manufacturing firms, there involved a production budget for direct materials, direct labour and overheads; also there involved the