Chapter6BudgetingManagementAccountingforDecisionMakersTenthEdition
LEARNINGOUTCOMESYoushouldbeableto:ExplainthebudgetingprocessandtheinterlinkingofthevariousbudgetswithinthebusinessDefineabudgetandshowhowbudgets,strategicobjectivesandstrategicplansarerelatedDiscussthecriticismsthataremadeofbudgetingIdentifytheusesofbudgetingandconstructvariousbudgets,includingthecashbudget,fromrelevantdata
PerformandcollectinformationonactualperformanceIdentifyandassessstrategicoptionsUndertakeapositionanalysisEstablishmission,visionandobjectivesSelectstrategicoptionsandformulatelong-term(strategic)plansPreparebudgetsIdentifyvariancesbetweenplanned(budgeted)andactualperformanceReviseplans(andbudgets)ifnecessaryRespondtovariancesandexercisecontrolFigure6.1Theplanningandcontrolprocess
Figure6.2TheinterrelationshipofoperatingbudgetsFinishedinventoriesbudgetProductionbudgetRawmaterialsinventoriesbudgetOverheadsbudgetTradereceivablesbudgetTradepayablesbudgetCapitalexpenditurebudgetRawmaterialspurchasesbudgetSales
budgetDirectlabourbudgetCashbudget
Figure6.3Theverticalrelationshipbetweenabusiness’ssalesbudgetsOverallsalesbudgetSalesbudget
NorthregionSalesbudget
SouthregionSalesbudget
EastregionSalesbudget
Westregion
ProvideasystemofauthorisationBudgetsPromoteforwardthinkingandidentificationofshort-termproblemsProvideabasisforasystemofcontrolMotivatemanagers
tobetterperformanceHelpco-ordinatethevarioussectionsofthebusinessFigure6.4Budgetsareseenashavingfivemainbenefitstothebusiness
Figure6.5Stepsinthebudget-settingprocessIdentifythekey,orlimiting,factorPreparethemasterbudgetsCommunicatethebudgetstoallinterestedpartiesMonitoractualperformancerelativetothebudgetCommunicatebudgetguidelinestorelevantmanagersEstablishresponsibilityforthebudget-settingprocessPrepare