Responsibility
Accounting
Chapter 6
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 6-1
Learning Objective 1
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 6-2
Budgeting Cycle
Performance planning
Providing a frame of reference
Investigating variations
Corrective action
Planning again
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 6-3
The Master Budget
Master
Master Budget
Budget
Operating
Operating Financial
Financial
Decisions
Decisions Decisions
Decisions
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 6-4
Learning Objective 2
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 6-5
What are the Advantages
of Budgets?
Provides a framework
#2 for judging performance
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 6-6
What are the Advantages
of Budgets?
Motivates employees
#3 and managers
Promotes coordination
#4 and communication
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 6-7
Strategy, Planning, and Budgets
Long-run Long-run
Planning Budgets
Strategy
Analysis
Short-run Short-run
Planning Budgets
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 6-8
Time Coverage of Budgets
Budgets typically have a set time
period (month, quarter, year).
This time period can itself be broken
into subperiods.
The most frequently used budget
period is one year.
Businesses are increasingly using
rolling budgets.
©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 6-9
Learning Objective 3
Budgeted Hours/Item
January – March 2004 3.00
April – June 2004 2.95
July – September 2004 2.90
October – December 2004 2.85
Prepare an activity-based
budget.
Product A Product B
Units produced: 880 200
Labor-hours per unit: 3 3
Budgeted setup-hours: 5 5
Total budgeted machine setup related cost is
$25,920 per month.
Product A Product B
$2,592 × 5 $12,960
$2,592 × 5 $12,960
Setup-related cost per unit:
Product A: $12,960 ÷ 880 $14.73
Product B: $12,960 ÷ 200 $64.80
– production
– service
Cost
Cost center
center
Investment
Investment center
center
Profit
Profit center
center