McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

Chapter 6Chapter 6

Planning, the Balanced Scorecard, and Budgeting

6-2

What are the Benefits of Budgeting?What are the Benefits of Budgeting?

• Planning

• Communication and coordination

• Resource allocation

• Evaluation and control

6-3

What are the Costs of Budgeting?What are the Costs of Budgeting?

• Time and resource requirements

• Adaptability

• Motivation and behavior Budgetary slack

6-4

What is the Difference between Mandated and Participatory Budgeting?What is the Difference between Mandated and Participatory Budgeting?

• Mandated Top down Based on standards

• Participatory Bottom up Based on “local” information

6-5

What is the Difference between Incremental and Zero-based Budgeting?What is the Difference between Incremental and Zero-based Budgeting?

• Incremental Last year is the base Adjust for anticipated increases/decreases

• Zero-based Zero is the base Justify all activities and requests

6-6

How Is Revenue Process Planning Related to the Balanced Scorecard?How Is Revenue Process Planning Related to the Balanced Scorecard?

• Balanced scorecard Goals and objectives Measurable outcomes for activities

• Revenue process planning Planning activities Budget—financial goals

6-7

What are the Budgets that Result from Revenue Process Planning?What are the Budgets that Result from Revenue Process Planning?

• Sales budget Units Dollars

• Cash receipts schedule When—collection patterns How much—sales discounts offered Uncollectible amounts

6-8

Revenue Budgets ContinuedRevenue Budgets Continued

• Accounts receivable schedule Beginning balance Add sales Less cash received Less sales discounts Less uncollectible amounts Equals ending balance

• Marketing and distribution budget Expected costs of activities

6-9

How Is Conversion Process Planning Related to the Balanced Scorecard?How Is Conversion Process Planning Related to the Balanced Scorecard?

• Balanced scorecard Goals and objectives Measurable outcomes for activities

• Conversion process planning Planning activities Budget—financial goals

6-10

What is the Budget that Results from Conversion Process Planning?What is the Budget that Results from Conversion Process Planning?

• Production budget Number of units to sell Add desired ending inventory of finished goods Less beginning inventory of finished goods Equals number of units to produce

6-11

How Is Expenditure Process Planning Related to the Balanced Scorecard?How Is Expenditure Process Planning Related to the Balanced Scorecard?

• Balanced scorecard Goals and objectives Measurable outcomes for activities

• Expenditure process planning Planning activities Budget—financial goals

6-12

What are the Budgets that Result from Expenditure Process Planning?What are the Budgets that Result from Expenditure Process Planning?

• Administrative budget Expected costs of activities

• Direct labor and manufacturing overhead budget Expected amount and cost of activities

6-13

Expenditure Budgets ContinuedExpenditure Budgets Continued

• Direct materials purchases budget Number of finished goods units to produce Multiply by the amount of direct materials

needed per unit of finished goods Add desired ending inventory of direct materials Less beginning inventory of direct materials Equals amount of direct materials to purchase Multiply by the purchase price per “unit” Equal direct material purchases

6-14

Expenditure Budgets ContinuedExpenditure Budgets Continued

• Cash disbursements schedule When—payment patterns How much—purchase discounts

• Accounts payable schedule Beginning balance Add net purchases Less cash payments Equals ending balance

6-15

What is the Master Budget?What is the Master Budget?

• Revenue process budgets

• Conversion process budgets

• Expenditure process budgets

• Capital resources process budgets (later in text)

• Budgeted (pro forma) financial statements