CHAPTER 8BUDGETING FOR PLANNING AND CONTROLQUESTIONS FOR WRITING AND DISCUSSIONBudgets are the quantitative expressions of plans. Budgets are used to translate the goals and strategies of an organization into operational terms. Control is the process of setting standards, receiving feedback on actual performance, and taking corrective action whenever actual performance deviates from planned perfor-mance. Budgets are standards, and they are compared with actual costs and revenues to provide feedback. he planning and control functions of bud-geting can benefit all organizations regard-less of size. !ll organizations need to de-termine what their goals are and how best to attain those goals. his is the planning func-tion of budgeting. "n addition, organizations can compare what actually happens with what was planned to see if the plans are un-folding as anticipated. his is the control function of budgeting. Budgeting forces managers to plan, pro-vides resource information for decision mak-ing, sets benchmarks for control and evalua-tion, and improves the functions of communication and coordination. ! master budget is the collection of all indi-vidual area and activity budgets. #perating budgets are concerned with the income-generating activities of a firm. $inancial budgets are concerned with the inflows and outflows of cash and with planned capital expenditures. he sales forecast is a critical input for build-ing the sales budget. %owever, it isnot nec-essarily equivalent to the sales budget. &pon receiving the sales forecast, manage-ment may decide that the firm can do better than the forecast indicates. Consequently, actions may betaken to increase the sales potential for the coming year 'e.g., increas-ing advertising(. his ad)usted forecast then becomes the sales budget. *es. !ll budgets are founded on the salesbudget. Before a production budget can be created, it must have the planned sales. he manufacturing budgets, in turn, depend on the production budget. he same is true for the financial budgets since sales is a critical input for budgets in that category.$or a merchandising firm, the production budget is replaced by a merchandise pur-chases budget. +erchandising firms also lack direct materials and direct labor budg-ets. !ll other budgets are essentially the same. $or a service firm 'for-profit(, the sales budget doubles as the production budget, and there is no finished goods in-ventory budget. he rest of the budgets have counterparts. ! static budget is for a particular level of activity. ! flexible budget is one that can be established for any level of activity. $orper-formance reporting, it is necessary to com-pare the actual costs for the actual level of activity with the budgeted costs for the ac-tual level of activity. ! flexible budget pro-vides the means to compute the budgeted costs for the actual level of activity, after the fact. ! flexible budget is based on a simple for-mula, * - $ . /0, which requires knowledge of both fixed and variable components. 1oal congruence is important because it means that the employees of an organiza-tion are working toward the goals of that or-ganization. $requent feedback is important so that cor-rective action can be taken, increasing the likelihood of achieving budget. Both monetary and nonmonetary incentives are used to encourage employees of an or-ganization to achieve the organization2s goals. +onetary incentives appeal to the economic needs of an individual, and non-monetary incentives appeal to the psycho-logical needs. 3ince individuals are moti-vated by both economic and psychological factors, both types of incentives ought to be present in a good budgetary system. 2314articipative budgeting is a system of bud-geting that allows subordinate managers a say in how the budgets are established. 4ar-ticipative budgeting fosters creativity and communicates a sense of responsibility to subordinate managers. "t also creates a higher likelihood of goal congruence since managers have more of a tendency to make the budget2s goals their own personal goals. !gree. "ndividuals who are not challenged tend to lose interest and maintain a lower level of performance. ! challenging, but achievable, budget tends to extract a higher level of performance. op management should provide guidelines and statistical input 'e.g., industrial fore-casts( and should review the budgets to mi-nimize the possibility ofbudgetary slack and ensure that the budget is compatible with the strategic ob)ectives of the firm. op management should also provide the incen-tive and reward system associated with the budgetary system. By underestimating revenues and overesti-mating costs, the budget is moreeasily achieved. o meet budget, it is possible to take actions that reduce costs in the short run but in-crease them in the long run. $or example, lower-priced, lower-quality materials can be substituted for the usualquality of materials. #ther performance measures include prod-uctivity, personnel development, market share, and product quality. ! manager would have to be rewarded for improve-ments achieved in each area. ! ma)or diffi-culty is determining how much weight to as-sign to each performance area.Behavioral factors can make or break a budgetary control system. "t is absolutelyessential to consider the behavioral ramifica-tions. "gnoring them can and probably will produce dysfunctional consequences. !cross-the-board cuts have the appearance of being fair, but they unfairly penalize good programs. "n an era of scarce resources, an organization must decide what it wishes to emphasizeand allocate resources accor-dingly. hismay mean the complete elimina-tion of weak programs and the strengthening of strong programs. o cut each program equally without considering which ones are vital to the success of the organization is not good planning. !ctivity-based budgeting requires three steps, '5( identification of activities6 '7( esti-mation of activity output demands6 and '8( estimation of the costs of resources needed to provide the activity output demanded. $unctional-based flexible budgeting relies on unit-based drivers to build cost formulas for various cost items. !ctivity flexible budgeting uses activity drivers to build a cost formula for the costs of each activity. 232EXERCISES81e d c e b 821.H I!.F2.E".F3.I F8.A#.G$.C%.D1&.B831.Freshaire , IncAnggaran PenjualanUntuk Tahun 2008'()*+U)(*,-./0*/1 1-./0*/1 2-./0*/1 3-./0*/1 #T2*/18&&&&11&&&&12#&&&1#&&&%#&&&9 H/03/9 43.&&9 43.&&9 43.&&9 43.&&9 43.&&Pe)5./1/)42#&&&&433&&&&43"2&&&4#2&&&&4 13!2&&&Le62)+U)(*,1&&&&&1&&&&&12&&&&1#&&&!&&&&9 H/03/9 43.%&9 43.%&9 43.%&9 43.%&943.%&Pe)5./1/)43%&&&&43%&&&&4#2&&&&4#$&&&&4 1!1&&&&T2*/1 Pe)5./1/)4%$&&&&4!8&&&&4"$2&&&4$1&&&&4 2$"2&&&F0e,7/(0e I)c. 8(11 .,e *7e ,/1e, b.d3e* () 91/))()3 /, *7e b/,(, :20 *7e 902;d.c*(2) b.d3e* /)d *7e ,.cceed()3 b.d3e*, 2: *7e 6/,*e0 b.d3e*. 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