【正文】 dgets ordinarily cover a oneyear period corresponding to a pany’s fiscal year. Many panies divide their annual budget into four quarters. A continuous budget is a 12month budget that rolls forward one month (or quarter) as the current month (or quarter) is pleted. McGrawHill Education (Asia) Garrison, Noreen, Brewer, Cheng Yuen /Irwin Slide 8 Learning Objective 2 Understand Basic Budgeting Terms and the Behavioral Aspects of Budgeting. McGrawHill Education (Asia) Garrison, Noreen, Brewer, Cheng Yuen /Irwin Slide 9 Bottomup and Topdown Budgeting Bottomup budgeting (Selfimposed budget or Participative budget ) Topdown budgeting Top Management Middle Management Lowerlevel Management Top Management Middle Management Lowerlevel Management McGrawHill Education (Asia) Garrison, Noreen, Brewer, Cheng Yuen /Irwin Slide 10 Advantages of the Bottomup Budgeting (SelfImposed Budgets) 1. Individuals at all levels of the anization are viewed as members of the team whose judgments are valued by top management. 2. Budget estimates prepared by frontline managers are often more accurate than estimates prepared by top managers. 3. Motivation is generally higher when individuals participate in setting their own goals than when the goals are imposed from above. 4. A manager who is not able to meet a budget imposed from above can claim that it was unrealistic. Selfimposed budgets eliminate this excuse. McGrawHill Education (Asia) Garrison, Noreen, Brewer, Cheng Yuen /Irwin Slide 11 How to overe problems of selfimposed budgets Selfimposed budgets should be reviewed by higher levels of management to prevent “budgetary slack (or budget padding).” Most panies issue broad guidelines in terms of overall profits or sales. Lower level managers are directed to prepare budgets that meet those targets. McGrawHill Education (Asia) Garrison, Noreen, Brewer, Cheng Yuen /Irwin Slide 12 Advantages of the Topdown Budgeting 1. Avoid the potential budgetary slack (budget padding). 2. Provide a clearer performance goals and expectations from the top management. 3. May provide better budget due to top management’s access to privileged/confidential market and anization information . 4. Provide an efficient budgetary process. McGrawHill Education (Asia) Garrison, Noreen, Brewer, Cheng Yuen /Irwin Slide 13 Budget Lapsing ? A popular method among government agencies, universities and anizations relying on allocated funds. ? Any unused funding at the end of the financial period cannot be carried forward to the following year. ? As a result, the following year’s budget may be cut because of the underexpenditure in the previous year. McGrawHill Education (Asia) Garrison, Noreen, Brewer, Cheng Yuen /Irwin Slide 14 Budget Lapsing: Advantages ? Budget lapsing helps ensure that the appropriate level of resources is utilized in each period. Without budget lapsing, riskaverse managers may unnecessarily accumulate funds and this may adversely affect the performance of the anization. ? It helps provide an opportunity for a clean cutoff of expenditures and to reallocate any unused resources for other more appropriate requirements. McGrawHill Education (Asia) Garrison, Noreen, Brewer, Cheng Yuen /Irwin Slide 15 Budget Lapsing: Potential Problem Solution ? Budget lapsing can cause undesired behavior effects. For example, managers may wastefully spend their entire budget before the end of the period in order to avoid budget cuts. ? A system of reviewing the expenditures near end of the period may uncover unnecessary expenditures and discourage managers to wastefully spend because of budget lapsing. McGrawHill Education (Asia) Garrison, Noreen, Brewer, Cheng Yuen /Irwin Slide 16 Incremental versus Zerobased Budgets ? Incremental method of budgeting is most monly used by panies. Companies start off one year’s budget by referring back to the previous year’s figures. Adjustments are then made to the budget to account for the expected changes such as prices for the next year. ? While incremental method of budgeting is practical and fast, any inefficiency in the previous year’s figures may be carried forward. For example, if all along the anization is over staffed, then the budget will continually to be allowing for the over staffing situation under this method. McGrawHill Education (Asia) Garrison, Noreen, Brewer, Cheng Yuen /Irwin Slide 17 Incremental versus Zerobased Budgets ? ZeroBased Budgets are prepared based on the assumption that the pany has just started. Therefore, resources required have to be justified from scratch. ? For example, when budgeting for staff cost for a restaurant, managers using the zerobased budgeting approach will ignore the existing staff level and expenses, rather, they will examine factors such as opening hours, number of tables, expected patron numbers to work out the number of staff required at each position and level, hence the associate costs, to produce a budget. McGrawHill Education (Asia) Garrison, Noreen, Brewer, Chen