ASSIGNMENT - AKMEN II

1. MELISA SEPTIANA (1642035)
Santi Yopie, SE., MM., CMA., Project+., CIBA., CPA., BKP.
BUDGETING FOR PLANNING AND
CONTROLING

2. 1. BUDGET
HOW ARE BUDGETS USED IN PLANNING?
 Budgeting is the process of creating a plan to spend
your money (cash outflow) and allows you to determine
in advance whether you will have enough money to do
the things you need to do or would like to do.
 Budgets are the quantitative expressions of plans.
Budgets are used to translate the goals and strategies
of an organization into operational terms.

3. 2. BUDGET CONTROL
 Control is the process of setting standards, receiving
feedback on actual performance, and taking corrective
action.
 A budget serves as a control tool to provide standards for
evaluating performance.
A budget can cover any of the following:
1. Profit planning – forecast of revenues and expenses
2. Cash budgeting – forecast of cash needs and sources
3. Balance sheet forecasting – anticipating future assets,
liability and net worth position of the business

4. 3. REASONS FOR BUDGETING
Budgeting forces managers to plan,decision making, sets
benchmarks for control and evaluation, and improves the functions
of communication and coordination. A budget helps your company
focus on common goals. A budget helps prepare for emergencies
or large or unanticipated expenses that might otherwise knock you
for a loop financially. A budget reveals areas where you're spending
too much money so you can refocus on your most important goals.
A budget can keep you out of debt or help you get out of debt.
operating without a budget? No, and neither should you. A budget
lets you control your money.

5. 4. MASTER BUDGET, AN OPERATING BUDGET,
AND FINANCIAL BUDGET
 The master budget is a 1 year budget planning document for the
firm encompassing all other budgets. It coincides with the fiscal
year of the firm and may be broken down into quarters and
further into months.
 The operating budget shows the income-generating activities of
the firm, including revenues and expenses. The result is a
budgeted income statement operating budget is actually
composed of eight supporting budget planning schedules.
 The financial budgetshows the inflows and outflows of cash and
other elements of the firm's financial position. The inflows and
outflows of cash come from the cash budget .

6. 5. WHY BUDGETS DEPEND ON THE SALES
BUDGET?
The production budget depends on the level of planned
sales. The manufacturing budgets, in turn, depend on the
production budget. The same is true for the financial
budgets since sales is a critical input for budgets in that
category. all budgets depend on sales budgets because
budgets can't exceed the amount of available money.
When sales are poor, the budgets will be smaller.

7. 6. IF THE VICE PRESIDENT OF SALES IS A
PARTICULARLY PESSIMISTIC INDIVIDUAL
If the vice president of sales is a pessimistic individual,
one might expect that she/he would underestimate sales
for the coming year. In your role as head of the budget
process, you might increase the budgeted sales figure to
take out the individual.

8. 7. IF THE CONTROLLER OF YOUR COMPANY’S
LARGEST FACTORY IS A PARTICULARLY
If the factory controller is a particularly optimistic
individual, it is possible that the costs for direct materials,
direct labor, and overhead could be underestimated. For
example , an optimistic person might assume that
everything will go well (etc : that there will be no problems
in obtaining an adequate supply of materials at the lowest
possible price). As head of the budget process, you might
allow for somewhat higher costs to more accurately reflect
reality

9. 8. WHAT IMPACT DOES THE LEARNING CURVE
HAVE ON BUDGETING?
Budgets might be affected?
The learning curve is the relationship between unit costs of
production and increasing number of units. As time goes on, the
number of units produced in a time period will increase and the
cost per unit will decrease. The budgets affected will be the direct
materials purchases budget, the direct labor budget, and the
overhead budget.

10. 9. WHILE MANY SMALL FIRMS DO NOT PUT
TOGETHER A COMPLETE MASTER BUDGET,
NEARLY EVERY FIRM CREATES A CASH BUDGET.
WHY DO YOU THINK THAT IS SO?
Small firms often do not engage in a comprehensive master budgeting
process. (Personally, we believe that is a mistake. The budgeting process
helps management more fully understand the business and helps them to
plan for the coming year.)
Even small businesses create cash budgets, however, because cash flow
is critically important.
For example, it is possible to have positive operating income, but
negative cash flow (e.g., if sales on account are high, but customers are
slow to pay). Negative cash flow could put a company out of business in
short order.

11. 10. DISCUSS THE SHORTCOMINGS OF THE
TRADITIONAL MASTER BUDGET. IN WHAT
SITUATIONS WOULD THE MASTER BUDGET
PERFORM WELL?
Small firms often do not engage in a comprehensive master budgeting process.
(Personally, we believe that is a mistake. The budgeting process helps
management more fully understand the business and helps them to plan for the
coming year.) Even small businesses create cash budgets, however, because
cash flow is critically important. For example, it is possible to have positive
operating income, but negative cash flow (e.g., if sales on account are high, but
customers are slow to pay). Negative cash flow could put a company out of
business in short order.

12. 11. STATIC BUDGET AND EXAMPLE THAT SHOWS
HOW RELIANCE ON A STATIC BUDGET COULD
MISLEAD MANAGEMENT
A static budget is one that is not adjusted for changes in activity. Using a static
budget for control can be a real problem. For example, suppose that the master
(static) budget is based on the production and sale of 100,000 units, but that
only 90,000 units are actually produced and sold. Further suppose that the
budgeted variable cost of goods sold was $2,000,000, and that the actual
variable cost of goods sold was $1,890,000. It looks as if the company spent
less than expected for variable manufacturing costs. However, the budgeted
variable cost was $20 per unit ($2,000,000/100,000), and the actual variable
cost per unit is $21 per unit ($1,890,000/90,000). Not adjusting the budget for
changes in activity level can mislead managers about efficiency.

13. 12. WHAT ARE THE TWO MEANINGS OF A
FLEXIBLE BUDGET? HOW IS THE FIRST TYPE OF
FLEXIBLE BUDGET USED? THE SECOND TYPE?
A flexible budget is a budget for various levels of activity 2 a budget for the
actual level of activity. The first type of flexible budget is used for planning and
sensitivity analysis. The second type of budget is used for control, since the
actual costs of the actual level of activity can be compared with the planned
costs for the actual level of activity.

14. 13. WHAT ARE THE STEPS INVOLVED IN
BUILDING AN ACTIVITYBASED BUDGET? HOW DO
THESE STEPS DIFFERENTIATE THE ABC FROM
THE MASTER BUDGET?
The activity-based budget starts with output, determines the activities necessary
to create that output, and then determines the resources necessary to support
the activities. This differs from the traditional master budgeting process in that
the master budget leaps directly from output to resources. Some of the resource
levels are assumed to be fixed. This makes them independent of volume
changes and hides the drivers that actually do affect the fixed resources. As a
result, the budget format does not support the creation of value and the thinking
that would go into determining the sources of waste.