BUDGETINGFramework for judging perf. (compare actual & budgeted to see how well you did)Motivates managers/employees (can incentivize workers by compensating them based on the difference btwn actual & budgeted numbers make sure you’re measuring what you truly want to optimize)Promotes coordination and comm among subunits in comp (i.e. if marketing wants to have a promo then operations and merch need to know how that will change demand) Master Budget: quantitative plan for a period of time, needs numbers (not all need to be financial, can be qualitative, i.e. # of customers you want to gain). Operating Budget(best use resources) budgeted income statementFinancial Budget(get $) budgeted balancesheetand budgeted state of CFOperating Budget Steps: 1. Sales Budget:(decide p & q)Units: unit sales per periodPrice: sales price per unit Revenue= units * price 2.Prod. budget (in units), DM usagebudget,DM purchase budget, DL budget, MOH budget, Ending inventories budget (leftovers?) Purchasing Budget:3. COGS budget, Period costs budget (i.efixed costs)Budgeted IS:Rev: (total units actually sold) * (selling p)Cost of sales: (^) * (VC/unit) Distribution costs: (^) * (distr. cost/unit) Total margin= (Rev) – (COS) – (Distr Costs) Other costs: fixed costs Net Income= (Total margin) – (Other costs) *Note: if revenues by quarter or cost of materials by quarter vary FIFO/LIFO!!! Financial Budget Steps: 4. Capital expenditures budget (costs thatprovide benefits over a # of years) Cash Flow from Operations:Revenue: total rev for period Purchase cost: total purchase costs for period from purchasing budget Distribution cost: total distribution costs for period based on units sold in period Other costs (fixed): total FC all. to the period CFO= (R) – (purch C) – (Distr. C) – (Other C)1. Cash Budget: Beginning Cash: ending cash from previous period (1stperiod= $ invested) Cash from operations: from CFO (R-all C) Ending Cash: (Beginning cash) – (CFO/F/I)Desired minending cash: put desired/needed ending cash for reference2.Budgeted Balance Sheet 3.Budgeted Statement of CFIS vs. Statement CF: both importantIS: tells you current income based on amount of resources actually used (i.e. cost of gas used vs. amount of money spent on gas- wouldn’t know actual amount used based off S-CF). Accounts for capital equip.