Angelica M. Cravens
Course: BUS 630 Managerial Accounting
Instructor: Anthony Perez
October 01, 2012
Final Project: Budgeting
Budgeting is used to help companies stay on track without going over their revenue and not spending too much on expenses. Budgeting is a very important part of a business success. There are many types of budgets that range from households to businesses. There have been new developments in the budgeting area in the last few years. There are some issues when looking at different types of budgets in the workplace some could be considered unethical and some can give an unfair advantage to the departments, it just depends on who is contributing information to the budgets. There are some sources that believe that budgeting should be taken beyond what the traditional budget offers this is known as beyond budgeting. Types of Budgets
There are many advantages to budgeting which include “budgets communicate management’s plan throughout the organization, budgets force manager to think about and plan for the future, the budgeting process provides a mean of allocating resources to those parts of the organization where they can be used most effectively, the budgeting process can uncover potential bottlenecks before they occur, budgets coordinate the activities of the entire organization by integrating the plans of its various parts, budgets define goals and objectives that can serve as benchmarks for evaluating subsequent performance” (Brewer, Garrison, & Noreen, 2011, p. 288). There are many types of budget that are used from households to businesses. According to Brewer, Garrison, and Noreen (2011), a budget is, “a detailed plan for the future, usually expressed in formal quantitative terms” (p. 32). The budgets are used in different time periods, some companies use a continuous budget or perpetual budget which is a twelve month budget that rolls forward one month and there is a participative budget or a self-imposed budget which the budgets are prepared by the department managers and then gone over by upper management (Brewer, Garrison, & Noreen, 2011). Depending on the type of business depends on the different types of budget that will be used to prepare a master budget. There are three different types of budgets that will be talked about, the master budget, the flex budget, and the planning budget, the different types of budgets are used for different reasons. According to Brewer, Garrison, and Noreen (2011) a master budget is, “a number of separate but interdependent budgets that formally lay out the company’s sales, production, and financial goals and that culminates in a cash budget, budgeted income statement, and budgeted balance sheet” (p. 293). There are several budgets that go into producing the master budget. In most businesses the master budget consist of the following budgets “sales budget, including a schedule of expected cash collection, a production budget (a merchandise purchases budget would be used in a merchandising company), a direct labor budget, a manufacturing overhead budget, and ending finished goods inventory budget, a selling and administrative expense budget, a cash budget, a budgeted income statement [, and] a budgeted balance sheet” (Brewer, Garrison, & Noreen, 2011, p. 295). The master budget is what would be shown to potential investors many of the other budgets are for internal use only and would not be good to show to potential investors because they may not be accurate and could also be misleading to the investors. Before talking about the flex budget the planning budget must be discussed. A planning budget or static planning budget is, “a budget created at the beginning of the budgeting period that is valid only for the planned level of activity” (Brewer, Garrison, & Noreen, 2011, p. 335). The planning budget is basically just an estimate of what will happen during the period or quarter. Once the company has the planned budget...