Master Budget Research Paper

3334 Words14 Pages
Introduction to Budgets and Preparing the Master Budget
Budgets and the Organization
Many people associate the word budget primarily with limitations on spending. For example, management often gives each unit in an organization a spending budget and then expects them to slay within the limits prescribed by the budget. However, budgeting can play a much more important role than simply limiting spending. Budgeting moves planning to the forefront of the manager's mind. Well-managed organizations make budgeting an integral part of the formulation and execution of their strategy. In Chapter I. we defined a budget as a quantitative expression of a plan of action. Sometimes plans are informal, perhaps even unwritten, and informal plans sometimes work
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Top management communicates the strategic goals and objectives of the organization in its budgetary directives. Lower-level managers and employees contribute their own ideas and provide feedback on the goals and objectives. The result is two-way communication about opportunities and challenges that lie ahead. Budgets also help managers coordinate activities across the organization. For example, a budget allows purchasing personnel to integrate their plans with production requirements, while production nuinugers use the sales budget and delivery schedule to help them anticipate and plan for the employees and physical facilities they will need. Similarly, financial officers use the sales budget, purchasing requirements, und other planned expenditures to anticipate the company's need for cash. Thus, budgeting forces managers to communicate and coordinate their department's activities with those of other departments und the company us a…show more content…
Organizations that have implemented activity-based cost accounting systems often use these systems as u vehicle to prepare an activity-based budget (ABB)—a budget the focuses on the budgeted cost of activities required to produce and sell products and services. An activity-based budgetary system emphasizes the planning and control purpose of cost management. Our discussion of activity-based costing (ABC) in Chapter 4 focused on designing cost accounting and cost allocation systems that provided more accurate product and service costs. However, once a company lies designed and implemented an ABC system, it can use the same framework for its budgetary system. Exhibit 7-8 highlights The main concepts and differences between ABC allocation of resource costs to activities and products, and ABB. Just as in functional budgeting (see Exhibit 7-2), ABB begins with the forecasted demand for products or services—The sales budget. In functional budgeting, the next steps are to deter¬ mine the ending-inventory budget, the material purchases budget, and the cost-of-goods-sold budget. In ABB. the focus is on estimating the demand for each activity's output as measured by its cost driver. Then, we use the rate at which activities consume resources to estimate or budget the
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