Lecture 18 0410 - ORIE 350 Budgeting November 7 2006...

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    ORIE 350 Budgeting November 7, 2006
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    Budgeting Budget – a formal written plan of action for a specified future time period, expressed in financial ($) terms Management uses budgeting to integrate the various components of the firm, and to provide insights into the appropriate scale of operations for the future.
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    Budgeting - purposes Compel planning Improve coordination and communication Provide a guide to action Provide a basis for performance evaluation
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    Operating Budgets Generally show the operating cost per period for a designated and important segment of operations. Focus on “interesting” costs…ones that very with volume, ones that can be affected by management decisions, etc. Fixed costs don’t really require a budget!
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    Budgeting Approaches Cost driver approach – costs are budgeted and driven by the number of units of a certain cost driver. This could be units produced, sales dollars, etc.
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