Management Accountant

In: Business and Management

Submitted By ruthna
Words 3833
Pages 16
CHAPTER 6
MASTER BUDGET AND RESPONSIBILITY ACCOUNTING

6-1 The budgeting cycle includes the following elements:
a. Planning the performance of the company as a whole as well as planning the performance of its subunits. Management agrees on what is expected.
b. Providing a frame of reference, a set of specific expectations against which actual results can be compared.
c. Investigating variations from plans. If necessary, corrective action follows investigation.
d. Planning again, in light of feedback and changed conditions.

6-2 The master budget expresses management’s operating and financial plans for a specified period (usually a fiscal year) and includes a set of budgeted financial statements. It is the initial plan of what the company intends to accomplish in the period.

6-3 Strategy, plans, and budgets are interrelated and affect one another. Strategy specifies how an organization matches its own capabilities with the opportunities in the marketplace to accomplish its objectives. Strategic analysis underlies both long-run and short-run planning. In turn, these plans lead to the formulation of budgets. Budgets provide feedback to managers about the likely effects of their strategic plans. Managers use this feedback to revise their strategic plans.

6-4 We agree that budgeted performance is a better criterion than past performance for judging managers, because inefficiencies included in past results can be detected and eliminated in budgeting. Also, future conditions may be expected to differ from the past, and these can also be factored into budgets.

6-5 Production and marketing traditionally have operated as relatively independent business functions. Budgets can assist in reducing conflicts between these two functions in two ways. Consider a beverage company such as Coca-Cola or Pepsi-Cola: • Communication. Marketing could share…...

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