Budgeting and Decision Making

This 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.

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 Ramifi cations
15.1 Sunk Costs Versus Relevant Costs
15.2 A Basic Illustration of Relevant Cost/Benefi t 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