Module 12 Budgeting Omar El-Kheshen – omar@arabacademy.com 1 Learning Objectives By the end of this module you should understand: 1. The role played by budgets in an organization 2. The problems surrounding budgets and how to solve these problems 3. The techniques of preparing a master budget and supporting schedules 4. The nature of discretionary expenditure and how zero-base budgeting can assist in allocating resources Omar El-Kheshen – omar@arabacademy.com 2 Agenda 12.1 Introduction 12.2 Why Bother with Budgets? 12.3 Why Budgeting Gets a Bad Name 12.4 Budgeting in Action: The Go-Straight Trolley Company 12.5 Discretionary Expenditure and Zero-Base Budgeting Review Questions Case Studies Omar El-Kheshen – omar@arabacademy.com 3 In module 9, we’ve covered the behavior of different types of cost; where costs are broken down into variable and fixed costs Variable Costs Fixed Costs Costs that change in magnitude with production or sales levels Costs that do NOT change as production or sales move up or down provide: Useful Managerial Information e.g. break-even points & the impact on profit of changing sales mixes Omar El-Kheshen – omar@arabacademy.com 4 Module 10 described various procedures for spreading those costs using plantwide and departmental overhead rates Departmental Rates Plantwide Rates based on: Predetermined Overhead Rate Budgeted overhead for accounting period Budgeted Production Units expressed in: either or Units produced Appropriate activity bases To determine the cost per unit of production or service We’ve also seen in Module 11, the requirement to identify only relevant costs for decision making Omar El-Kheshen – omar@arabacademy.com 5 Little space has been devoted so far to the predictive step in the management process "Budgeting"; which will be the subject of this module and the next Budgeting
A plan of action, usually expressed in numbers and amounts, which sets targets for individuals and for the business over a

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