BUDGETING

LONG TERM PLANNING

CORPORATE PLANNING FRAMWORK
1. Setting aims and Objectives
Mission Statement
Quantifiable Objectives like market share
operating efficiency and GP rate etc
2. Identifying the Options
External research of environment
Internal research of environment
3. Choose Option
Regarding market, product, capital and HR
usually to cover a period of 5 years
 Contd
4. Setting Budgets
It is financial plan for the short term---typically one year
Long term plans are broken into actionable blue prints for
immediate future
5. Performance Evaluation and Control
The process of making planned events actually occur is
known as Control
Respond to variances

Management Accountant is a Manager rather than

accountant
 BUDGETS
It is a Plan for a future period of time and not a
Forecast
Annual budget is broken down into monthly
budgets
Periodic Budget is prepared for a particular period
Continual or Rolling Budget is would add a new
month to replace the month that has just passed.
Mostly thrives on broken parts of Periodic
Budget
 INTERRELATIONSHIP OF
VARIOUS BUDGETS
Separate budget for each manager and each activity.
Sales Budget ------- Finished Goods Budget
Direct labor budget-----Overhead budget
Direct material budget

Debtors budget---- cash budget---- creditors

budget
 Master Budgets
Individual budgets will be summarized in
Master Budgets comprising budgeted
Income Statement and Balance Sheet
 The Uses of Budgets

Identification of Short Budgets Help co-ordinate the

term problems and various sections of the
promote business
Short term problems

Motivate managers to Provide basis for Provide a system of

Better performance Establishing authorization
Control system
THE BUDGET SETTING PROCESS

Assign responsibility to person

Communicate guidelines to concerned Managers

Identify the key limiting factor

Prepare budget for the key limiting factor

Prepare draft budgets for each department

Prepare Master budgets

Communicate budgets to concerned managers

Monitor performance with relation to budget

 Basis of Allocation in budgets

• Incremental Budgets: with adjustments to

what happened last year
• Discretionary Budgets: Lack of
relationship between inputs and outputs
as in R&D
• Zero-base Budgets: When all spending
needs to be justified
• Activity-based Budget
 Non-financial measures in
budgeting
1. Customer satisfaction
2. Product quality
3. Customer delivery efficiency
4. Supplier quality and delivery
5. Setup times
 Who needs budgets
1. Takes enormous management time
2. Reduces autonomy of managers particularly in Top
to Bottom approach
3. Managers lose sight of long term planning
4. Can not deal with the fast changing environment.
BUT STILL HAS A VALUE, RELIANACE MAY BE
PLACED ON BALANCE SCORE CARD LIKE
OPTIONS