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Profit Planning,

Activity-Based Budgetingand e-Budgeting

Chapter Nine

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Purposes of Budgeting Systems

Budget

a detailed plan,

expressed inquantitative terms,that specifies howresources will be

acquired and usedduring a specifiedperiod of time.

1. Planning

2. Facilitating

Communication andCoordination

3. Allocating Resources

4. Controlling Profit and

Operations5. Evaluating Performance

and Providing Incentives

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Types of Budgets

1) Master budget

2) Pro forma financial statements

3) Capital budget

4) Financial budget

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Types of Budgets

2004 2005 2006 2007

Continuous or

Rolling Budget

This budget is usually a twelve-month

budget that rolls forward one month

as the current month is completed.

L o n g R a n g e B u d g e t s

Capital budgets with acquisitions

that normally cover several years.

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Master Budgets: Where to Start

Sales forecasting is a critical step in the

budgeting process and it is very difficult to do

accurately.

Relies on numerous areas for input from many

people and sources both inside and outside the

organization.

Ex: Past sales levels and trends, economictrends, planned promotions, competitors etc

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Master Budgets: Operational

Budgets

Operational budgets specify how

operations will be carried out to produce

and organizations goods or services. Includes production budget (manufacturing

firm), labour budgets, selling and

administrative budgets etc Operational budgets are key to

determining a companys cash budget

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Completion of Budget Schedules

Problem

9-40

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April May June Quarter

Beginning cash balance 40,000$ 30,000$ 30,000$ 40,000$

Add: cash collections 170,000 400,000 335,000 905,000

Total cash available 210,000 430,000 365,000 945,000

Less: disbursements

Materials 40,000 72,300 72,700 185,000Direct labor 24,000 36,800 24,000 84,800

Mfg. overhead 56,000 76,000 59,000 191,000

Selling and admin. 70,000 85,000 75,000 230,000

Equipment purchase - 143,700 48,300 192,000

Dividends 25,000 - - 25,000Total disbursements 215,000 413,800 279,000 907,800

Excess (deficiency) of

Cash available over

disbursements (5,000)$ 16,200$ 86,000$ 37,200$

Cash Disbursement Budget

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Question 928

Page 383

Cash Receipts Budget

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Activity-Based Costing versus

Activity-Based Budgeting

Resources

Cost objects:

products and services

produced, and

customers served.

Activities

Resources

Forecast of products

and services to be

produced and

customers served.

Activities

Activity-Based

Costing (ABC)

Activity-Based

Budgeting (ABB)

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Assumptions and Predictions

Master budget is based on many

assumptions and estimates of unknown

parameters

Financial planning models are used to

supplement the budgeting process

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Budget Administration

The Budget Committee is a standing

committee responsible for . . .

overall policy matters relating to the budget. coordinating the preparation of the budget.

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Zero-Base Budgeting

To receive funding during the budgeting

process, each activity must be justified in

terms of its continued usefulness.

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Behavioral Impact of Budgets

Budgetary Slack: Padding the Budget

People often perceive that their performance

will look better in their superiors eyes ifthey can beat the budget.

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End of Chapter 9

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