Notesale: Turn your study into money

Document Preview

Extracts from the notes are below, to see the PDF you'll receive please use the links above

---

HULT International Business School
Managerial Accounting (ACC220)
Outline of the Required Book

Chapter 6 - Budgeting
1
...
It define precise targets concerning:
- cash receipts and payments
- sales volumes and revenues
- detailed inventories requirements
- detailed labour requirements
- specific production requirements
- (5) Perform review and control
➔ Exercising control:
- Control​: the process of making planned events actually occur = compelling events to
conform to plan (valid definition in any context)
...
It is possible to state many in
financial terms
...

- The planning and control process:
- Establish mission vision and objectives; Undertake a position analysis; Identify and
assess strategic options; Select strategic options and formulate plans
- Prepare budgets
- Perform and collect information on actual performance
- Identify variances between planned (budgeted) and actual performance
- Respond to variances and exercise control
- Revise plans (and budgets) if necessary
...
Times horizons of plans and budgets
➔ Setting strategic plans is typically a major exercise performed about every 5 years and budgets are
usually set ​annual for the forthcoming year, broken down into monthly budgets which vary for
seasonal periods (ie
...
Tech = shorter, like overnight)

3
...

- Plan => determination/intention to achieve the target
- Forecast = predictions about the future of the environment

4
...


➔ Continual/Rolling budgets: continually updated (like the broken down monthly budgets are being
updated to correspond to the changing environment)
...
Limiting factors
➔ Limiting factors: ​production shortage, fund shortage,
...


6
...

➔ Diagram: The interrelationship if operating budgets (​horizontal​)

➔ The ​vertical relationship between budgets: the overall sales budgets comprises the north region,
shouth, east and wes: geographical basis, product type basis, or others …

7
...
Effective budgets will allow managers to exercise self-control
...


8
...

- BC includes a senior representation of the functional areas of the business: marketing,
production, …
- A ​budget officer carries out the technical tasks of the committee, given to accountants or
hose with technical expertise in the domain
...

➔ Step 3:​ Identify the key or limiting factor
➔ Step 4:​ Prepare the budget for the area of the limiting factor
- the limiting factor will determine the overall level of activity of the business
...

➔ Step 5:​ Prepare draft budgets for all other areas
- top-down approach: where senior management of each budget areas originates the
budget targets, perhaps discussing them with lower levels of management nd, as a result,
refining them before the final version is produced
...

➔ Step 6​: Review and coordinate budgets
- ensure the consistency between the budgets,
- consensual approach should be taken
➔ Step 7:​ Prepare the master budgets
➔ Step 8:​ Communicate the budgets to all interested parties
➔ Step 9:​ Monitor performance relative to the budget

9
...
inflation)
...
R&D, staff training)
➔ the ​budget holder​ = manager responsible for the budget
...
Incremental and zero base budgeting
➔ Zero based budgeting​ rests on the philosophy that all spending needs to be justified
...
Preparing budgets

12
...
Non-financial measures in budgeting
➔ efficiency of internal operations
➔ customer satisfaction
➔ non-financial measures can also be integrated to the budgeting process

14
...
How needs budgets ?
➔ critics around the budget:
- B cannot deal with fast changing environment
- they focus too much management on the achievement of short term financial targets
- reinforce the command and control structure concentrating power in the hands fo
managers
- enormous amount of management time that could be better used
- encourage incremental thinking for the employees
- protects costs rather than aiming to lower them

16

---