CHAPTER 15 - Accounting as an Aid to Management Planning and Control

Abstract

This chapter explores some management control techniques, which have been developed from cost accounting. The chapter shows that business accounting is not purely historical but it has a vital role to play in current control and future planning of operations. The chapter discusses budgets expressed in money terms. The budget is a blueprint for future operations within a selected period of time: month, year or longer. A long-term plan is normally prepared in general terms to give the overall direction for a number of years ahead. The long term is then broken down into shorter budget periods for more detailed budgeting. Detailed budgets are prepared for each area of business activity prior to being combined into a master budget to reveal the coordinated business plan for the budget period. Sales budget is prepared in detail in terms of both quantity and value for each product after a careful consideration of market conditions and prospects. The production budget forecasts what is to be produced if the sales budget is to be met. However, production budget takes into account management's policy on the holding of finished stocks and work in progress. Labor requirements budget forecasts the detailed labor requirements to meet the production budget.