Master Budget

2030 Words Apr 7th, 2012 9 Pages



1. Describe what the master budget is and explain its benefits

2. Describe the advantages of budgets

3. Prepare the operating budget and its supporting schedules

4. Use computer-based financial planning models in sensitivity analysis

5. Explain kaizen budgeting and how it is used for cost management

6. Prepare an activity-based budget

7. Describe responsibility centers and responsibility accounting

8. Explain how controllability relates to responsibility accounting


Chapter 6 introduces the important topic of budgets. Budgets are the primary financial planning tool used by businesses. The
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Do Chapter Quiz #3. Assign Exercise 6-16.

Students sometimes find it difficult to understand the relationship among the different budgets. Assigning an exercise that requires students to prepare all budgets and then reviewing the budgets in class helps students better understand and relate to the concepts in this chapter.

Budgets usually cover a specific period of time, such as a month, quarter, or year. The most common budget is a one-year budget, which may then be subdivided into monthly and quarterly segments. Preparation of a budget typically begins with an estimate of revenues and ends with the budgeted income statement. A common nine-step approach to developing an operating budget and supporting schedules is as follows:

1. Prepare the revenues budget. 2. Prepare the production budget. 3. Prepare the direct materials usage and purchases budgets. 4. Prepare the direct manufacturing labor budget. 5. Prepare the manufacturing overhead budget. 6. Prepare the ending inventories budget. 7. Prepare the cost of goods sold budget. 8. Prepare the nonmanufacturing costs budget. 9. Prepare the budgeted income statement.

(Exhibit 6-2 provides an overview of the budgeting process .) (Exhibits 6-5 through 6-8 display sample budget reports.)

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