Foundation on Budgeting

8/12/2019 Foundation on Budgeting

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CHAPTER 5


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1. The Planning And Control Cycle


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2. Budgetary Planning And Control Systems

BUDGETis a quantified plan of action for a forthcoming accounting period.

-- is a planof what the organization is aiming to achieveand what is has set asa target

FORECASTEstimateof whatis likely to occur in the future.

Objectives of a Budgetary Planning And Control System.

To ensure the achievement of the organization's objectives.

To compel planning.

To communicate ideas and plans.

To coordinate activities

To provide a framework for responsibility accounting

To establish a system od control.

To motivate employees to improve their performance.

Provide a framework for authorization

Provide a basis for performance evaluation


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3. Responsibility Centres

RESPONSIBILITY CENTREIs a function or department of an organization that is

headed by a manager who has direct responsibilityfor its

performance.

Can be divided into 3 :

1) COST CENTREact as a collecting place for certain cost before they analyzed further

-- Responsible for the cost only.

2) PROFIT CENTREany unit of an organization to which both revenues and cost areassigned, so the profitability of the unit can be measured.

REVENUE CENTREis similar to a cost center and profit center but accountable to

revenueonly.

3) INVESTMENT CENTREis a profit center whose performance is measured by its

return on capital.

-- accountable to cost, revenues and investments.


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4. Controllable Costs

CONTROLLABLE COSTS AND UNCONTROLLABLE COSTS

CONTROLLABLE IN SHORT TERM

A cost which is not controllable by a junior manager or supervisor mightme controlled by a senior manager

A cost which is not controllable by a manager in one department may be

controllable by a manager in another department.

CONTROLLABLE IN LONG TERM

Production cost might reduced by introduction of new machinery and

technology.

NON-CONTROLLABLE COST

Increase in expenditure due to inflation.

THE CONTROLLABILITY OF FIXED COSTS

Committed fixed costsuncontrollable in short term

Discretionary fixed costscould be raised or lowered at fairly short notice.

THE CONTROLLABILITY AND APPORTIONED COSTS

Managers should only held accountable for cost over which they havesome influence.


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5. Fixed And Flexible Budgets

FIXED BUDGETis a budget which is designed to remain unchanged regardless of the

volume of output or sales archived.

FLEXIBLE BUDGETis a budget which, by recognizing different cost behavior patterns.

--is designed to change as volume of output change.

6. Preparing Flexible BudgetsLook at page 323 BPP FMA STUDY TEXT

7. Flexible Budgets And Budgetary Control

Look at page 336 BPP FMA STUDY TEXT


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8. Features and Functions of Spreadsheets

SPREADSHEETSis an electronic piece of paper divided into rows and columns.

The intersections of the row and column called cell

CELL CONTENTS - Text- Values

- Formulae

ADVANTAGES

- Easy to learn and use

- Calculation an d Manipulation quicker and easier- Enable the Analysis, reporting and sharing of financial information

- Enable what-if analysis to be performed quickly

DISADVANTAGES

- Formulae hidden from sight

- Presentation may make reports appear infallible- High proption of large model may having critical error

- Database not suitable for large amount of data

- Not good at word processing

- Not suitable for constructing entire accounting system .


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USES OF SREADSHEET

- Budgeting

- What-If Analysis

Documents

Foundation on Budgeting