Session 3 - Lecture Slides

Nov.
Introduction
Syllabus (on K2)
AP assignment and AP groups(on K2)
Strategic management accounting

AP: OVAR
Balanced scorecard (BSC)
Strategy map
Jan.
Fundamentals of management accounting
Cost allocation
Cost volume profit relationship
Job-costing system
Activity-based costing (ABC)
Exercises & Teamwork
Planning and budgetary control

Budgeting process
Master budget
Flexible budgets
Variance analysis Final test
Beyond budgeting on Forms
Feb. Case studies & teamwork
Chats & forums (K2, email)

II. PLANNING & BUDGETARY
CONTROL SYSTEMS
Preparation of budgets
Analyzing results
Beyond budgeting
3
The Budgeting process – part of the planning process
Choice of strategic orientation

Long term
P Strategic plan
L
A
N Medium term Operational plan
N
I
Annual action plans
N
G Short term
Budget
4 Measurement & interpretation of results

The budgeting procedure
Preparation – executive management sets objectives, policies & directions that
operational managers will have to follow
Analyze results in progress; seize opportunities; correct weaknesses – learning &
regulation
Carry out the procedure – describe the roles in the process ; define the structure
and nature of the documents to provide; establish the level of detail needed in
information; ensure that a shared management vocabulary is used (create
dictionaries with technical definitions); establish the budget horizon
Back-and-forth budget negociations
Budget (objectives, action Consolidated budget after

Approval of
Budget plans, resources, expected negotiation with
company
guidelines results, built by responsibility centers
budget
responsibility centers)
September October - November December
5 (Giraud et al., 2011)

MASTER BUDGET – Wessex Engineering
(Bhimani et al., 2009)
Revenue
budget
Closing stock Production

budget budget
O
P Direct manufacturing Manufacturing
Direct materials
E labour overhead costs
costs budget
costs budget budget
R
A Cost of goods sold budget
T
I R&D/Design costs budget
N
G Marketing costs budget
budget
Distribution costs budget
Customer-service costs budget
Administrative costs budget
Budgeted profit statement

F
I
Capital budget Cash budget Budgeted BS Budgeted Statement of cash flow 6
N.
budget
Budgets – practical difficulties
Timetable – before the start of the financial year
Definition of formats – similar logic in every department
Use of a common language with or without VAT; hourly labour cost
Budget slack – negative or positive effects?

The lack of flexibility in the budget process – introduce the rolling
budgets ; is it enough from the planning perspective?
Zero-based budgeting
Activity-based budgeting
7
GLOSSARY
Budget – a quantitative expression of a proposed plan of action by management for a future time period and
is an aid to the coordination and implementation of the plan
Master budget – coordinates all the financial projections in the organization’s individual budgets in a single
organization-wide set of budgets for a given time period; it deals with both operating and financial
decisions
Strategy – describes how an organization matches its own capabilities with the opportunities in the
marketplace to accomplish its overall objectives.
Rolling budget – a budget or plan that is always available for a specific future period by adding a month,
quarter or year in the future as the month, quarter or year just ended is dropped
Operating budget – the budgeted profit statement and its supporting budget schedules
Financial budget – a part of the master budget that comprises the capital budget, budgeted balance sheet,
and budgeted statement of cash flows.
Pro forma statements – a version of the budgeted financial statements
8
GLOSSARY
Padding the budget / introducing budgetary slack – practice of underestimating budgeted revenues
(or overestimating budgeted costs) in order to make targets more easily achievable.
Financial planning models – mathematical representations of the relationships across operating activities,
financial activities and financial statements – sensitivity analysis
Activity-based budgeting – a budgetary approach based on the extension of the activity –basic costing
principles
Organizational structure – arrangement of lines of responsibility within the entity
Responsibility center – a part, segment or subunit of an organization whose manager is accountable for a
specified set of activities , Cost center, Revenue center, Profit center, Investment center
Controllability – controllable cost – if subject to the influence of a given manager of a given responsibility
center for a given time span
9
EXERCISES
QUESTION 2
=
QUESTION 3
QUESTION 4 VS. QUESTION 2

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Nov.

Strategic management accounting

Planning and budgetary control

Chats & forums (K2, email)

Choice of strategic orientation

4 Measurement & interpretation of results

Back-and-forth budget negociations

Budget (objectives, action Consolidated budget after

September October - November December

5 (Giraud et al., 2011)

Closing stock Production

Customer-service costs budget

Administrative costs budget

Budgeted profit statement

Timetable – before the start of the financial year

Definition of formats – similar logic in every department

Use of a common language with or without VAT; hourly labour cost

Budget slack – negative or positive effects?

Pro forma statements – a version of the budgeted financial statements

Organizational structure – arrangement of lines of responsibility within the entity

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