tailieunhanh - Lecture Accounting for decision making and control (8/e): Chapter 6 - Jerold L. Zimmerman

Chapter 6 - Budgeting. The main contents of the chapter consist of the following: Budgets and organizational architecture, example: country club, large corporation, trade-off: communication vs. evaluation, budget ratcheting, trade-off: bottom-up vs. top-down,. | Budgeting Chapter Six Copyright © 2014 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Budgets and Organizational Architecture A budget is management’s forecast of revenues, expenses, or profits in a future time period. Knowledge: Budgets communicate key planning assumptions such as product prices, units sales, and input prices. Partition Decision Rights: Budget sets guidelines on resources available for each segment. Performance Evaluation: Responsibility center’s actual performance is compared to budget. 6- Example: Country Club Responsibility Centers: 1 profit center and 2 cost centers Measurement: Monthly reports compare actual revenues and expenses to budget. Favorable (F) variance: actual revenue > budgeted revenue actual expense budgeted expense Budget process separates decision rights. Initiation and implementation by professional managers. Ratification and monitoring by Board of Directors and members. 6- Example: Large Corporation Responsibility centers: 2 cost (manufacturing and marketing) 1 profit (paper and toner supplies) Knowledge: Vertical transfers (lower to higher levels) Horizontal transfers (marketing to manufacturing) Identify potential bottlenecks in production Identify financing needs Contracting: Budgets are internal contracts between operating segments Divisional managers negotiate budgets Executive managers negotiate disputes and review budgets for consistency with corporate strategy 6- Trade-off: Communication vs. Evaluation Budgets are used for both decision management and decision control. Optimal decision making requires managers fully reveal private knowledge about production and market conditions during budget negotiations. When budgets are also used for performance evaluation, managers have an incentive to make biased budget forecasts so that their actual performance will look good relative to budget. | Budgeting Chapter Six Copyright © 2014 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Budgets and Organizational Architecture A budget is management’s forecast of revenues, expenses, or profits in a future time period. Knowledge: Budgets communicate key planning assumptions such as product prices, units sales, and input prices. Partition Decision Rights: Budget sets guidelines on resources available for each segment. Performance Evaluation: Responsibility center’s actual performance is compared to budget. 6- Example: Country Club Responsibility Centers: 1 profit center and 2 cost centers Measurement: Monthly reports compare actual revenues and expenses to budget. Favorable (F) variance: actual revenue > budgeted revenue actual expense budgeted expense Budget process separates decision rights. Initiation and implementation by professional managers. Ratification