Managerial Accounting – In Class Notes – Chapter 9
1. How does a budget relate to the three management functions (planning, directing/motivating, and control)?
? Planning – Budget is management’s plan for a specific period expressed in financial terms.
? Directing – Budget is primary way to communicate agreed-upon objectives to all parts of company
? Motivating – Budget may inspire higher levels of performance or discourage additional effort
? Control – Budget is an important basis for performance evaluation once adopted, it also assesses success of company’s operations
2. What are the benefits of budgeting?
1. Requires all levels of management to plan ahead.
2. Provides definite objectives for evaluating performance at each level of responsibility.
3. Creates an early warning system for potential problems (control).
4. Motivates personnel throughout the organization to meet planned objectives.
5. Facilities coordination of activities within the organization.
6. Results in greater management awareness of entity’s overall operations and their relationship to external factors such as the economy.
3. How does budgeting differ from long-range planning?
Budget more detail oriented and focused on short term goals – (vs. long term goals and strategies to achieve)
4. What is participative budgeting? What are the advantages and disadvantages?
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