Chester & Wayne

This week we cover Budgets and Standard Cost Systems, of the text. 

There are many advantages to budgeting and some of them are listed below:

· Budgets define goals and objectives that can serve as benchmarks for evaluating subsequent performance.

· Budgets coordinate the activities of the entire organization by integrating the plans of its various parts. Budgeting helps to ensure that everyone in the organization is pulling in the same direction.

· The budgeting process can uncover potential bottlenecks before they occur.

· The budgeting process provides a means of allocating resources to those parts of the organization where they can be used most effectively.

· Budgets force managers to think about the plan for the future. In the absence of the necessity to prepare a budget, many managers would spend all of their time dealing with day-to-day emergencies.

· Budgets communicate management’s plans throughout the organization. 

When preparing a master budget you will want to prepare other budgets in the following order: sales budget, production budget, direct material budget, direct labor budget, manufacturing overhead budget, selling and administrative expense budget and cash budget. 

Flexible budgets which takes into account how changes in activity affect costs.  A flexible budget is an estimate of the revenues and costs that are expected given actual levels of activity.  A flexible budget approach recognizes that budget can be adjusted to show what cost should be for the actual level activity.  Remember, as you move forward, that all costs are not fixed.  This is an error that is made in static budgeting.