Once the break-even point has been reached, net operating income will increase by the amount of the unit contribution margin for each additional unit sold.
Required: For each of the following managerial accounting techniques, read the definition provided in your textbook. In your post, provide an example of a personal situation where you would benefit from use of each technique. 1. Break-even point (pgs. 194 – 195, 206) 2. Budget (pg. 294) 3. Differential Analysis: Relevant Costs& Benefits (pgs. 458 – 461) WHAT IS A BUDGET? A budget is a detailed plan for the future that is usually expressed in formal quantitative terms. Individuals sometimes create household budgets that balance their income and expenditures for food, clothing, housing, and so on while providing for some savings. Once the budget is established, actual spending is compared to the budget to make sure the plan is being followed. Companies use budgets in a similar way, although the amount of work and underlying details far exceed a personal budget. Budgets are used for two distinct purposes-planning and control. Planning involves developing goals and preparing various budgets to achieve those goals. Control involves gathering feedback to ensure that the plan is being properly executed or modified as circumstances change. To be effective, a good budgeting system must provide for both planning and control. Good planning without effective control is a waste of time and effort. Advantages of Budgeting Organizations realize many benefits from budgeting, including: 1. Budgets communicate management’s plans throughout the organization. 2. Budgets force managers to think about and 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. 3. The budgeting process provides a means of allocating resources to those parts of the organization where they can be used most effectively. 4. The budgeting process can uncover potential bottlenecks before they occur. 5. 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. 6. Budgets define goals and objectives that can serve as benchmarks for evaluating subsequent performance.
