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| a detailed quantitative plan for acquiring and using financial and other resources over a specified forthcoming time period. |
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| The act of preparing a budget. |
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| The use of budgets to control an organization’s activity. |
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| involves developing objectives and preparing various budgets to achieve these objectives. |
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*Sales and Earnings Goals
*Capital Projects
*Reorganizations
*Cash Management |
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| involves the steps taken by management that attempt to ensure the objectives are attained. |
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*Tracking, monitoring and reporting results
*Assign individuals or teams for accountability
*Basis of management bonuses |
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| In order to be effective..... |
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Definition
| must have both planning and control. |
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*Define Goals and Objectives
*Think about and plan for future
*Means of allocating resources
*Uncover potential bottlenecks
*Coordinate Activities
*Communicate Plans |
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| Responsibility Accounting |
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Definition
| Managers should be held responsible for those items — and only those items — that the manager can actually control to a significant extent |
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| may be divided into quarterly or monthly budgets. (Usually done in thousands of dollars). |
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| is prepared with the full cooperation and participation of managers at all levels. |
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| Advantages of Self-Imposed Budgets |
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Definition
*Individuals at all levels of the organization are viewed as members of the team whose judgments are valued by top management.
*Budget estimates prepared by front-line managers are often more accurate than estimates prepared by top managers.
*Motivation is generally higher when individuals participate in setting their own goals than when the goals are imposed from above.
*A manager who is not able to meet a budget imposed from above can claim that it was unrealistic. Self-imposed budgets eliminate this explanation. |
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| Management Guidlines may include... |
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Definition
*Expense inflation assumption
*Merit increase assumption
*Market share goals
*Payroll benefits
*Headcount targets including temporary personnel
*Expense targets (e.g. travel) |
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| In Human Factors of Budgeting, the sucess of budgeting depends upon 3 important factors. |
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Definition
*Top management must be enthusiastic and committed to the budget process.
*Top management must not use the budget to pressure employees or blame them when something goes wrong.
*Highly achievable budget targets are usually preferred when managers are rewarded based on meeting budget targets.
*Inter-relationships of charges and expenses are clear and appropriately reflected. |
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Term
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Definition
responsible for
overall policy matters relating to the budget
coordinating the preparation of the budget |
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Term
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Definition
*Prepared by sales and marketing personnel with overall guidance from top management
*Includes units (production) and dollars (collections and income statement)
*Includes pricing strategies |
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