Looking to excel in your Management Accounting course and achieve your academic goals? Look no further than these comprehensive study notes! These notes are concise and structured (WITH CALCULATION WORKINGS) for Module 4 of the CPA Australia Foundation Management Accounting subject. (p.s, am sell...
M 4:1 - The purpose and benefits of budgeting 1.2 Budgets in the context of planning and control
Planning
Budget ● Making choices between alternatives
● A quantitative statement ● Primary decision-making activity
● For a defined period of time ● Budgeted values
● Includes : planned revenues, expenses, assets, liabilities and cash flows
Control
1.1 Purposes and benefits ● Measuring and correcting actual performance to ensure that the strategies that
Main purpose and benefit of using a budget are chosen and the plans for implementing them are carried out
● Assist with the achievement of the organization’s objectives ● Actual results
● Compel planning
● Communicate ideas and plans Budget
● Coordinate activities ● The link between planning and control
● Provide a framework for responsible accounting
● Establish a system of control
● Motivate employees to improve their performance
● Allocation of resources
,Planning and control cycle
Step 1 Identify objectives
● Maximize profits
● Increase market share
● Produce better quality products in the market
● “Where do we want to be?”
Step 2 Identify alternative courses of action
Strategies that might enable the organization to achieve its objectives:
● Position audit/analysis
○ Information gathering exercise
○ “Where is the company now?”
○ Looking inwards and outwards of the organization
Step 4 Choose alternative courses of action
● Coordinate them into a long-term plan
Step 5 Implement a long-term plan
● Broken down into smaller parts (budget : short-term plan)
Step 6 Measure actual results and compare with the plan
Step 7 Respond to divergences from plan
● Long-term plan should be reviewed
● Feedback loop and information
● Performance reports
○ Detailed comparisons of actual results vs. budgeted results
● Corrective action
○ Actual outcomes conform to planned outcomes
● Responsibility accounting
, M 4:2 - Steps in budget preparation 2.1 Budget committee
● Coordination and administration of budgets
Budget preparation ● Consists of senior executives
● Ideally begins towards the end of the strategy planning stage ● Assisted by a budget officer (usually an accountant)
● Once objectives and strategies have been decided upon ● Representatives from sales, marketing, production etc
● Important in coordination and control
● Responsibility sits on a Budget Committee Functions of the budget committee
● Coordination and allocation of responsibility for the preparation of budgets
● Issuing of the budget manual
● Timetabling
● Provision of information - assist in the preparation of budgets
● Communication of final budgets to managers
● Monitoring the budgeting and planning process
○ Compare actual and budgeted results
, 2.2 Responsibility for budgets 2.3 Budget manual
● Lies with the managers who are responsible for implementing them A collection of instructions on how to use the tool, systems and software related to the
○ Sales manager - sales budget, selling overhead cost centre budgets budgeting process
○ Purchasing manager - material purchases budget
○ Production manager - direct production costs budget Contains the following:
Explanation of the objectives of the budgetary process
● Purpose of budgetary planning and control
● Objectives of the various stages of the budgetary process
● Importance of budgets: long-term planning and administration
Organisation structures
● An organisation chart
● A list of individuals holding budget responsibilities
An outline of principal budgets
● The relationships between them
Administrative details of budget preparation
● Membership
● Sequence of preparation
● Timetable
Procedural matters
● Sample forms and instructions
● Account codes/chart of accounts
● Name of budget officer - enquires to be directed to him/her
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