Budgeting Basics and Beyond E-Book

Jae K. Shim

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Serie: Wiley Corporate F&A
• Sprache: Englisch

Seitenzahl: 575

Veröffentlichungsjahr: 2011

Beschreibung

A convenient and up-to-date reference tool for today's financialand nonfinancial managers in public practice and privateindustry If the very thought of budgets pushes your sanity over thelimit, then this practical, easy-to-use guide is just what youneed. Budgeting Basics and Beyond, Fourth Edition equips youwith an all-in-one resource guaranteed to make the budgetingprocess easier, less stressful, and more effective. The new editioncovers rolling budgets (forecasts), activity-based budgeting,life-cycle budgeting. Cloud computing, Balanced Scorecard,budgeting for nonprofit organizations, business simulations forexecutive and management training, and much more! * Includes several new software packages, computer-based modelsand spreadsheet applications, including Value Chain Managementsoftware, Financial Planning and Performance software, Web 2.0,Cloud computing, and capital budgeting software * Features case studies, illustrations, exhibits, forms,checklists, graphs, samples, and worked-out solutions to a widevariety of budgeting, planning, and control problems * Offers financial planning and new types of financial modeling,variance analysis, Web-based budgeting, active budgetingilluminating "what-if" analyses throughout, spreadsheetapplications, break-even analysis, project analysis, and capitalbudgeting Budgeting Basics and Beyond, Fourth Edition is apractical, easy-to-use problem-solver and up-to-date reference toolfor today's financial and nonfinancial managers in public practiceand private industry.

Leseprobe

Contents

Cover

Series Page

Title Page

Copyright

Dedication

About the Authors

Preface

Chapter 1: The What and Why of Budgeting: An Introduction

Planning

Types of Budgets

Budgetary Process

Budget Coordination

Departmental Budgeting

Actual Costs versus Budget Costs

Budget Revision

Budget Weaknesses

Budgetary Control and Audit

Computer Applications

Motivation

Advantages and Disadvantages of Budgets

Budgetary Slack: Padding the Budget

Summary

Chapter 2: Strategic Planning and Budgeting: Process, Preparation, and Control

Budgeting

Strategic Planning

Short-Term Plans

Long-Term Plans

Choosing a Budget Period

Administering the Plan

Profit Plan

Operational Plan

Development Plan

Contingency Planning

Budget Process

Departmental Budgets

Budget Accuracy

Reports

Budget Revision

Performance Measures

Control and Analysis

Summary

Chapter 3: Administering the Budget: Reports, Analyses, and Evaluations

Types of Reports

Budget Manual

Budget Sheet

Performance Reports

Budget Audit

The Budget Committee

Budget Calendar

Chapter 4: Break-Even and Contribution Margin Analysis: Profit, Cost, and Volume Changes

Questions Answered by Break-Even and Contribution Margin Analysis

Applications of the CVP Model

Contribution Margin Income Statement

Impact of Income Taxes

Some Applications of Contribution Margin Analysis and What-If Analysis

Sales Mix Analysis

CVP Analysis with Step-Function Costs

Importance of Identifying Variable and Fixed Costs—CVP-Based Strategies

Summary

Chapter 5: Profit Planning: Targeting and Reaching Achievable Goals

Goal Congruence

Profit Targets

Objectives in the Profit Plan

Role of Nonfinancial Managers

Assumptions

Alternatives

Responsibility

Participation

Subordinates

Coordination

Scheduling

Problems

Control, Evaluation, and Analysis

Internal Controls

Real-Life Illustrations in Profit Planning

Summary

Chapter 6: Master Budget: Genesis of Financial Forecasting and Profit Planning

Comprehensive Sales Planning

Sales Budget

Monthly Cash Collections from Customers

Production Budget

Inventory Purchases, Merchandising Firm

Direct Material Budget

Direct Labor Budget

Factory Overhead Budget

Ending Finished Goods Inventory Budget

The Cost of Goods Sold Budget

Selling and Administrative Expense Budget

Cash Budget

Budgeted Income Statement

Budgeted Balance Sheet

Some Financial Calculations

Using an Electronic Spreadsheet to Develop a Budget Plan

Financial Forecasting: The Percent-of-Sales Method

Summary

Chapter 7: Cost Behavior: Emphasis on Flexible Budgets

A Look at Costs by Behavior

Analysis of Mixed (Semivariable) Costs

High-Low Method

Regression Analysis

Fixed Budgets versus Flexible Budgets and Performance Reports

Summary

Chapter 8: Evaluating Performance: The Use of Variance Analysis

Usefulness of Variance Analysis

Standard Setting

Planning Variance

Sales Variances

Cost Variances

Material Variances

Labor Variances

Overhead Variances

Interrelationship of Variances

Mix and Yield Variances for Material and Labor

Profit Variance Analysis

Nonmanufacturing Activities

Illustrative Variance Analysis Report for a Service Business

Variances to Evaluate Marketing Effort

Illustrative Marketing Performance Report

Variances in Administrative Expenses

Capital Expenditures

Variance Analysis Reports

Summary

Chapter 9: Manufacturing Costs: Sales Forecasts and Realistic Budgets

Illustration

Planning and Control of Material Purchases and Usage

Materials Budgets

Materials Purchase Budget Illustrated

Planning and Control of Direct Labor

Planning and Control of Factory Overhead

Summary

Chapter 10: Marketing: Budgeting for Sales, Advertising, and Distribution

Marketing Budgets

Selling Expenses

Advertising and Sales Promotion

Distribution Costs

Analysis and Evaluation of Distribution Costs

Control over Distribution Costs

Packaging

Travel and Entertainment

Budget Meetings

Summary

Chapter 11: Research and Development: Budgets for a Long-Term Plan

R&D Costs

R&D Planning

Funding Level

R&D Budget

Coordination

Analysis and Evaluation

Control over R&D

R&D Risk

Summary

Chapter 12: General and Administrative Costs: Budgets for Maximum Productivity

Budget Process

Analysis and Evaluation

Cost Control

Employees

Summary

Chapter 13: Capital Expenditures: Assets to Be Bought, Sold, and Discarded

Budget Process

Authorization of Capital Budget

Capital Budget Forms

Capital Budget

Capital Expenditure Reports

Budget Revisions

Special Projects

Analysis of Capital Projects

Control over Capital Expenditures

Summary

Chapter 14: Forecasting and Planning: Reducing Risk in Decision Making

Who Uses Forecasts?

Forecasting Methods

Selection of Forecasting Method

Qualitative Approach

Common Features and Assumptions Inherent in Forecasting

Steps in the Forecasting Process

Summary

Chapter 15: Moving Averages and Smoothing Techniques: Quantitative Forecasting

Naive Models

Smoothing Techniques

Summary

Chapter 16: Regression Analysis: Popular Sales Forecast System

Least-Squares Method

A Word of Caution

Regression Statistics

Using Regression on Excel

Summary

Chapter 17: Cash Budgeting and Forecasting Cash Flow: Two Pragmatic Methods

Account Analysis

Cash Budget

Cash Variance Analysis

Cash Flow Software

A Caveat—Perils of Spreadsheets

Summary

Chapter 18: Financial Modeling: Tools for Budgeting and Profit Planning

A Financial Model

Budgeting and Financial Modeling

Use of Financial Modeling in Practice

Developing Financial Models

Summary

Chapter 19: Using Software Packages and E-Budgeting: Computer-Based Models, Spreadsheets, and Web-Based Systems

Use of a Spreadsheet Program for Financial Modeling and Budgeting

Budgeting Software Packages

Latest Generation of Budgeting and Planning Software and E-Budgeting

Summary

Chapter 20: Capital Budgeting: Selecting the Optimum Long-Term Investment and Real Options

Accounting (Simple) Rate of Return

Payback Period

Payback Reciprocal

Discounted Payback Period

Net Present Value

Profitability Index

Internal Rate of Return (Time-Adjusted Rate of Return)

Nondiscretionary Projects

Comparison of Methods

Capital Budgeting Process

Real Options

Discovery-Driven Planning

Capital Budgeting and Inflation

Postaudit Project Review

Capital Budgeting and Nonprofit Organizations

Risk and Uncertainty

Summary

Chapter 21: Budgeting for Cost Management: Activity-Based Budgeting and Life-Cycle Budgeting

Activity-Based Budgeting

Activity-Based Management

Life-Cycle Budgeting

Kaizen Budgeting

Summary

Chapter 22: Zero-Base Budgeting: Priority Budgeting for Best Resource Allocation

Zero-Base Budgeting Process

Zero-Base Budgeting Effects

Activity Units

Decision Packages

Ranking Proposals

Project (Program) Budgets

Summary

Chapter 23: Managers' Performance and Balanced Scorecard: Evaluation at the Division Level

Appraising Manager Performance

Responsibility Center

Revenue Center

Cost Center

Profit Center

Investment Center

The Balanced Scorecard

Applying the Balanced Scorecard to a School District

Budgeting and the Balanced Scorecard: An Oxiteno Case Study 1

Summary

Chapter 24: Budgeting for Service Organizations: Special Features

Airlines

Hotels

Summary

Chapter 25: Budgeting for Nonprofit Organizations: Diverse Types

Planning

Funds

Recordkeeping and Reporting

Government Budgets and Accounting Bases

Budget Development

Budgeting Revenue

Budgeting Expenditures

Encumbrances

Budgetary Control

Effectiveness and Control Measures

Organizational Structure

Functional or Program Reporting

Budget Adaptability

Budget Participants

Budgeting Aspects for Specific Nonprofits

Summary

Chapter 26: Using Management Games for Executive Training

The Capstone Business Simulation 1

Appendix I: Future and Present Value Tables

Appendix II: Statistical Table

Glossary of Budgeting and Planning Terms

Index

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The Wiley Corporate F&A series provides information, tools, and insights to corporate professionals responsible for issues affecting the profitability of their company, from accounting and finance to internal controls and performance management.

Copyright © 2012 by Jae K. Shim, Joel G. Siegel, Allison I. Shim. All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey.

Published simultaneously in Canada.

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Library of Congress Cataloging-in-Publication Data:

Shim, Jae K.

Budgeting basics and beyond/Jae K. Shim, Joel G. Siegel, Allison I. Shim. — 4th ed.

p. cm. — (Wiley Corporate F&A series)

Includes index.

ISBN 978-1-118-09627-7 (hardback); ISBN 978-1-118-12796-4 (ebk);

ISBN 978-1-118-12797-1 (ebk); ISBN 978-1-118-12798-8

1. Budget in business. I. Siegel, Joel G. II. Shim, Allison I., 1984–III. Title.

HG4028.B8S558 2011

658.15′4—dc22

2011015866

To Chung Shim, dedicated wife and mother; Roberta M. Siegel, loving wife and colleague; and Sylvia and Arnold Siegel, loving mother and brother

About the Authors

Jae K. Shim is a professor of accounting and finance at California State University, Long Beach and CEO of Delta Consulting Company, a financial consulting and training firm. Dr. Shim received his MBA and PhD degrees from the University of California at Berkeley (Haas School of Business). Dr. Shim has been a consultant to commercial and nonprofit organizations for more than 30 years.

Dr. Shim has more than 50 college and professional books to his credit, including Managerial Accounting, Barron's Accounting Handbook, Barron's Dictionary of Accounting Terms, 2012 GAAP, Encyclopedic Dictionary of Accounting and Finance, 2011–2012 Corporate Controller's Handbook of Financial Management, U.S. Master Finance Guide, Dictionary of Personal Finance, Investment Sourcebook, Dictionary of Real Estate, Dictionary of International Investment Terms, Dictionary of Business Terms, The Vest-Pocket CPA, The Vest-Pocket CFO, and the best-selling The Vest-Pocket MBA.

Thirty of his publications have been translated into foreign languages such as Chinese, Spanish, Russian, Polish, Croatian, Italian, Japanese, and Korean. Professor Shim's books have been published by Thomson-Reuters, John Wiley & Sons, McGraw-Hill, Barron's, CCH, Prentice-Hall, American Management Association (AMACOM), and the American Institute of CPAs (AICPA).

Dr. Shim has been frequently quoted by such media as the Los Angeles Times, Orange County Register, Business Start-Ups, Personal Finance, and Money Radio. Dr. Shim has also published numerous articles in professional and academic journals. He was the recipient of the Financial Management Association International's 1982 Credit Research Foundation Award for his article on cash flow forecasting and financial modeling.

Joel G. Siegel, PhD, CPA, is a financial consultant and professor of accounting and finance at Queens College of the City University of New York.

He was previously employed by Coopers and Lybrand, CPAs, and Arthur Andersen, CPAs. Dr. Siegel has acted as a consultant to many organizations, including Citicorp, International Telephone and Telegraph, United Technologies, American Institute of CPAs, and Person-Wolinsky Associates.

Dr. Siegel is the author of 67 books and about 300 articles on accounting and financial topics. His books have been published by Prentice Hall, McGraw-Hill, HarperCollins, John Wiley & Sons, Macmillan, International Publishing, Barron's, Southwestern, Aspen, Richard Irwin, Probus, American Management Association, and the American Institute of CPAs.

Dr. Siegel's articles have been published in many accounting and financial journals, including Financial Executive, Financial Analysts Journal, CPA Journal, Practical Accountant, and the National Public Accountant.

In 1972, he was the recipient of the Outstanding Educator of America Award. Dr. Siegel is listed in Who's Where among Writers and Who's Who in the World. His international reputation led to his appointment in 1992 as chairperson of the National Oversight Board.

Allison I. Shim is CFO of Delta Consulting Company. She is a finance expert and a PhD candidate at the University of California, Irvine.

Preface

Better budgets can boost your department and your career to higher levels of performance and success. Savvy executives use the budgeting process to take stock of their direction, refine their goals, and share their mission with their staff. Their budgeting reveals their position in the market, places untapped resources at their command, and motivates all employees to greater levels of productivity. They use their budgets to propel them toward the top of their industry. This book will show you how to get there.

Budgeting Basics and Beyond shows you how the budget can be your most powerful tool for strategy and communications. It points out that the budget brings into stark relief all of the factors that every manager must consider, such as industry conditions, competition, degree of risk, stability of operations, capacity limitations, pricing policies, turnover rates in assets, production conditions, product line and service considerations, inventory balances and condition, trends in the marketplace, number of employees and their technical abilities, availability and cost of raw materials, available physical resources, technological considerations, economy, and political aspects. Then it uncovers the role each of those factors plays in achieving your corporate goals. And since those goals cannot be achieved single-handedly, this book suggests ways to use the budget to help employees appreciate how they will contribute to the division's profitability. Aside from playing a vital role in creating and achieving a sound business strategy, this book shows how budgets can increase your effectiveness every day of the week. In particular, it delivers these on-the-job budgeting tools:

Techniques for preparing more accurate, realistic, and reliable estimates

Control and variance analysis devices that signal revenue, cost, and operations thresholds

Pricing guidelines for products and services

Planning and scheduling production and related costs

Profit planning and identifying looming problems

Financial models that show the relationship among all facets of the business

Spreadsheet applications for planning, budgeting, and control purposes

Sales and financial forecasting methodology

Balanced scorecard and performance metrics

We follow the example of each of these tools with examples of how you can use them to make a difference in your work right away. And we use step-by-step guidelines to pinpoint what to look for, what to do, how to do it, and how to apply it on the job. Through step-by-step illustration, we show how you can put these tools to use.

While research shows that two-thirds of U.S. companies still rely on Microsoft Excel for their budgeting process, some companies are evolving to a more technologically advanced approach. As more and more companies operate globally, the Internet is playing an ever-greater role in the budgeting process. E-budgeting is an increasingly popular Internet- or intranet-based cloud-computing budgeting tool that can help streamline and speed up an organization's budgeting process. In addition, an increasing number of companies are turning to budgeting as a way to reduce costs for competitive advantage in a global environment.

In response to recent developments in budgeting, the fourth edition of the book features the following:

Updated and additional hands-on examples throughout the book.

Additional spreadsheet examples for budgeting, such as rolling budgets and probabilistic budgets.

In depth e-budgeting and Web-based budgeting systems discussions.

A new chapter, “Budgeting for Cost Management: Activity-Based Budgeting and Life-Cycle Budgeting.”

Budgeting in Action boxes in key chapters, offering a glimpse into how real companies use the budgeting tools and concepts discussed within the chapter.

A companion web site. Please visit www.wiley.com/go/budgetingbasics4e to download supplementary materials to use alongside this book.

We hope that you will keep Budgeting Basics and Beyond handy for easy, quick reference and daily use.

Chapter 1

The What and Why of Budgeting

An Introduction

A budget is defined as the formal expression of plans, goals, and objectives of management that covers all aspects of operations for a designated time period. The budget is a tool providing targets and direction. Budgets provide control over the immediate environment, help to master the financial aspects of the job and department, and solve problems before they occur. Budgets focus on the importance of evaluating alternative actions before decisions actually are implemented.

A budget is a financial plan to control future operations and results. It is expressed in numbers, such as dollars, units, pounds, and hours. It is needed to operate effectively and efficiently. Budgeting, when used effectively, is a technique resulting in systematic, productive management. Budgeting facilitates control and communication and also provides motivation to employees.

Budgeting allocates funds to achieve desired outcomes. A budget may span any period of time. It may be short-term (one year or less, which is usually the case), intermediate (two to three years), or long-term (three years or more). Short-term budgets provide greater detail and specifics. Intermediate budgets examine the projects the company currently is undertaking and start the programs necessary to achieve long-term objectives. Long-term plans are very broad and may be translated into short-term plans. The budget period varies according to its objectives, use, and the dependability of the data used to prepare it. The budget period is contingent on business risk, sales and operating stability, production methods, and length of the processing cycle.

There is a definite relationship between long-range planning and short-term business plans. The ability to meet near-term budget goals will move the business in the direction of accomplishing long-term objectives. Budgeting is done for the company as a whole, as well as for its component segments, including divisions, departments, products, projects, services, and geographic areas. Budgets aid decision making, measurement, and coordination of the efforts of the various groups within the entity. Budgets highlight the interaction of each business segment with the whole organization. For example, budgets are prepared for units within a department, such as product lines; for the department itself; for the division, which consists of a number of departments; and for the company.

Master (comprehensive) budgeting is a complete expression of the planning operations of the company for a specific period. It is involved with both manufacturing and nonmanufacturing activities. Budgets should set priorities within the organization. They may be in the form of a plan, project, or strategy. Budgets consider external factors, such as market trends and economic conditions. The budget should list assumptions, targeted objectives, and agenda before number crunching begins.

The first step in creating a budget is to determine the overall goals and strategies of the business, which are then translated into specific long-term goals, annual budgets, and operating plans. Corporate goals include earnings growth, cost minimization, sales, production volume, return on investment, and product or service quality. The budget requires the analysis and study of historical information, current trends, and industry norms. Budgets may be prepared of expected revenue, costs, profits, cash flow, production purchases, net worth, and so on. Budgets should be prepared for all major areas of the business.

The techniques and details of preparing, reviewing, and approving budgets vary among companies. The process should be tailored to each entity's individual needs. Five important areas in budgeting are planning, coordinating, directing, analyzing, and controlling. The longer the budgeting period, the less reliable the estimates.