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& CONTROL
(Chapter 8)
Budgeting,
Budgeting, Planning
Planning
And
And Control
Control
A budget is a plan and budgeting is
The
The Strategic
Strategic Planning
Planning
Process
Process
The
The Strategic
Strategic Planning
Planning
Relationship
Relationship With
With
Budgeting
Budgeting
Forecasting
Forecasting And
And
Planning
Planning
Budget
Budget Preparation
Preparation Flow
Flow
Diagram
Diagram
Performance
Performance Evaluation
Evaluation
And
And Control
Control (1)
(1)
The master profit and loss budget is prepared
from each of the elements of the operating
budget:
sales
production
distribution and administration
financial
the master budget is comprised of the
profit and loss budget
cash budget
balance sheet budget
Performance
Performance Evaluation
Evaluation
And
And Control
Control (2)
(2)
Risk assessment and risk analysis should
be applied to the master budget
Responsibility
Responsibility Centres
Centres
As part of the control function
of the budget, the system of
responsibility accounting is
used to measure actual results
against budget for each of
various types of responsibility
centre
A responsibility centre is a
department or organisational
Center
Incur cost but not necessarily generate
revenue ,ie production department
Profit
Center
Incur cost & revenue, ie. Branch offices
of banks
Types of Responsibility
Centers
Investment
Center
Incur cost, generate revenues &
has control over investment
funds available for use.
Associated with subsidiary
companies
Eg KFC Holding s responsibility
center is Pizza Hut.
Divisional
Divisional Performance
Performance
The performance of managers of
responsibility centres may be
considered using the divisional
performance measures of return
on investment (ROI)
ROI focuses only on the
performance for the particular
control period.
ROI represents single
summary measures of
performance.
Standard
Standard Costing
Costing
standard costing can be used to calculate
costs of units
or processes that may be used in
budgeted costs
not all budgeted amounts are standard
amounts, as the latter will be precise by
nature, unlike budgeted amounts
standard costing provides the basis for
performance evaluation and control from
comparison of actual performance against
budget through the setting of
Flexed
Flexed Budgets
Budgets
A flexed budget
Variance
Variance Analysis
Analysis (1)
(1)
Variances
are the difference between planned,
budgeted or
standard costs (or revenues) and actual
costs incurred
may be summarised in an operating
statement to
reconcile budget with actual performance
Variance
Variance Analysis
Analysis (2)
(2)
Variance between actual and
standard performance may be
investigated to explain the reasons
for the differences,
through completion of a complete
analysis of all variances, or
alternatively
through the use of exception
reporting that highlights only
significant variances