Budgeting and Decision Making eBook

| March 20, 2013 | 0 Comments

budgeting-and-decision-makingThis book is the last of seven books which introduces the basic principles of accounting. In this book you will learn about planning for success through budgeting. Key budgets, such as the sales, production, direct materials purchases, direct labor, overhead, selling and administrative, and cash budgets are all discussed in detail. Critical elements of budget analysis, including flexible budgets, standard costs, and variance analysis are discussed. Key topics including sunk costs, outsourcing, special orders, make versus buy, and evaluation of long-term projects.

Content

Part.1 Budgeting: Planning for Success

1. Importance of Budgets

  • 1.1 Forms and Functions
  • 1.2 Avoiding Business Chaos
  • 1.3 An Electrifying Case in Budgeting
  • 1.4 Recapping Benefits of Budgeting

2. Budget Processes and Human Behavior

  • 2.1 Budget Construction
  • 2.2 Mandated Budgets
  • 2.3 Participative Budgets
  • 2.4 Blended Approach
  • 2.5 Organizational Structure Considerations
  • 2.6 Flattening the Organization Chart
  • 2.7 Budget Estimation
  • 2.8 Slack and Padding
  • 2.9 Zero-Based Budgeting
  • 2.10 The Impossible Budget and Employee Capitulation
  • 2.11 Ethical Challenges in Budgeting

3. Components of the Budget

  • 3.1 Sales Budget
  • 3.2 Production Budget
  • 3.3 Direct Material Purchases Budget
  • 3.4 Direct Labor Budget
  • 3.5 Factory Overhead Budget
  • 3.6 Selling and Administrative Expense Budget
  • 3.7 Cash Budget
  • 3.8 Budgeted Income Statement and Balance Sheet
  • 3.9 External Use Documents
  • 3.10 Performance Appraisal

4. Budget Periods and Adjustments

  • 4.1 Continuous Budgets
  • 4.2 Flexible Budgets
  • 4.3 Encumbrances

Part. 2 Tools for Enterprise Performance Evaluation

5. Responsibility Accounting and Management by Exception

  • 5.1 Centralized Versus Decentralized Decision-Making
  • 5.2 Responsibility Centers
  • 5.3 Cost Center
  • 5.4 Profit Center
  • 5.5 Investment Center
  • 5.6 Affixing Responsibility
  • 5.7 Responsibility Center Reports
  • 5.8 The Power of a Data Base System
  • 5.9 Traceable Versus Common Fixed Costs
  • 5.10 Management by Expansion

6. Flexible Budgets

  • 6.1 Flexible Budget for Performance Evaluations
  • 6.2 Flexible Budgets for Planning
  • 6.3 Flexible Budgets and Efficiency of Operation

7. Standard Costs

  • 7.1 Setting Standards
  • 7.2 Philosophy of Standards
  • 7.3 The Downside of the Standards

8. Variance Analysis

  • 8.1 Variances Relating to Direct Materials
  • 8.2 An Illustration of Direct Material Variance Calculations
  • 8.3 Journal Entries for Direct Material Variances
  • 8.4 When Purchases Differ From Usage
  • 8.5 Variances Relating to Direct Labor
  • 8.6 An Illustration of Direct Labor Variance Calculations
  • 8.7 Journal Entries for Direct Labor Variances
  • 8.8 Factory Overhead Variances
  • 8.9 Variable Versus Fixed Overhead
  • 8.10 Variances Relating to Variable Factory Overhead
  • 8.11 Exploring Variable Overhead Variances
  • 8.12 An Illustration of Variable Overhead Variances
  • 8.13 Journal Entry for Variable Overhead Variances
  • 8.14 Careful Interpretation of Variable Overhead Variances
  • 8.15 Variances Relating to Fixed Factory Overhead
  • 8.16 An Illustration of Fixed Overhead Variances
  • 8.17 Journal Entry for Fixed Overhead Variances
  • 8.18 Recapping Standards and Variances
  • 8.19 Examining Variances

9. Balanced Scorecard Approach to Performance Evaluation

  • 9.1 The Balance Scorecard in Operation

Part.3 Reporting Techniques in Support of Managerial Decision Making

10. Variable Versus Absorption Costing

  • 10.1 Absorption Costing
  • 10.2 Variable Costing
  • 10.3 Variable Costing in Action
  • 10.4 A Double-Edge Sword
  • 10.5 Avoiding a Downward Spiral
  • 10.6 Confused?
  • 10.7 An In-Depth Comparison of Variable Costing and Absorption Costing Income Statements
  • 10.8 The Impact of Inventory Fluctuations

11. Segment Reporting

  • 11.1 Internal Reporting of Segment Data
  • 11.2 The Problem of Segment Income Measurement
  • 11.3 Contribution Income Statement Format
  • 11.4 External Reporting of Segment Data

12. Measures of Residual Income

  • 12.1 Keeping Residual Income in Perspective

13. Concepts in Allocating Service Department Costs

  • 13.1 The Direct Method of Allocating Service Department Cost
  • 13.2 The Step Method of Allocating Service Department Cost
  • 13.3 Multiple Steps and Simultaneous Allocations

14. Leveraging the Power of Modern Information Systems

  • 14.1 Line Item Versus Object of Expenditure
  • 14.2 Business Dashboard

Part 4. Analytics for Managerial Decision Making

15. Cost Characteristics and Decision-Making Ramifications

  • 15.1 Sunk Costs Versus Relevant Costs
  • 15.2 A Basic Illustration of Relevant Cost/Benefit Analysis
  • 15.3 Complicating Factors

16. Business Decision Logic

  • 16.1 Outsourcing
  • 16.2 Outsourcing Illustration
  • 16.3 Capacity Considerations in Outsourcing
  • 16.4 Illustration of Capacity Considerations
  • 16.5 Qualitative Issues in Outsourcing
  • 16.6 Special Orders
  • 16.7 Capacity Constraints and the Impact on Special Order Pricing
  • 16.8 Discontinuing a Product, Department, or Project
  • 16.9 The 80/20 Concept

17. Capital Expenditure Decisions

  • 17.1 Management Stewardship
  • 17.2 Logic and Justification of Capital Decisions

18. Compound Interest and Present Value

  • 18.1 Compound Interest
  • 18.2 Future Value of Annuities
  • 18.3 Future Value of an Annuity Due
  • 18.4 Future Value of an Ordinary Annuity
  • 18.5 Present Value
  • 18.6 Present Value of an Annuity Due
  • 18.7 Present Value of an Ordinary Annuity
  • 18.8 Electronic Spreadsheet Functions
  • 18.9 Challenge Your Thinking

19. Evaluation of Long-Term Projects

  • 19.1 Net Present Value
  • 19.2 Impact of Changes in Interest Rates
  • 19.3 Emphasis on After Tax Cash Flows
  • 19.4 Accounting Rate of Return
  • 19.5 Internal Rate of Return
  • 19.6 Payback Method
  • 19.7 Conclusion

20. Appendix


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About the author

Larry M. Walther, Ph.D., CPA, CMA, is the Ernst & Young Professor and Head of the School of Accountancy at Utah State University.  Dr. Walther has authored numerous accounting textbooks and articles, and has served as director and/or consultant to a number to a number of public and nonpublic companies. Dr. Walther obtained his Ph.D. in accounting from Oklahoma State University and has public accounting experience with Ernst & Young.  He currently serves as the accounting accreditation committee of the AACSB and is past president for the federation of schools of accountancy.

Dr. Chris Skousen obtained his Ph.D. at Oklahoma State University.  He earned MBA and BA degrees from Utah State University. Dr. Skousen gained public accounting auditing experience with KPMG in their Portland, Oregon office, and as an intern in their in Düsseldorf, Germany office, and at Squire & Co. Dr. Skousen has taught accounting at Utah State University, The University of Texas at Arlington, Oklahoma State University, and Brigham Young University-Idaho. He has published in Accounting Horizons, Behavior Research in Accounting, Accounting and the Public Interest, and other journals.

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