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Managerial Acct Chapter 5

Managerial Acct Chapter 5 - Chapter 5 Relevant Range 1...

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Chapter 5 Relevant Range 1- Relevant range may be defined as the operating range or activity level over which a firm finds it practical to operate in a short-run time period. 2- Referred to as budgeting or profit planning, is a measure of management's financial expectations for the near future usually the coming year. Often, plans are made on a month by month basis. 3- The short range period is normally considered to be that period in which the firm faces constraining factors(are those factors which cannot be significantly altered in short run, such as capacity of equipment, number of employees, demand for products. 4- Short-range budgets must provide sufficient detail to allow day-to-day functioning at operational levels, the significant planning decisions are made and the formalized plan are prepared on a segment-by-segment basis for a firm ( e.g. of segments include divisions, product lines and sales territories. Management participation is an integral part of the successful budgeting Process. 5- In large firms, short range budgeting normally begins with lower management and then progresses upward to the upper levels of management. 6- Some analysis of projected cash flow must be considered in order to assure management that the firm will be able to meet cash requirement during coming period (If the plan formalized, it is called budgets). 7- Long –Range plan can be considered goals that firm would like to achieve or attain in
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the future. Goals are expressed in vary general descriptive terms, such as the goal or objective to be the largest firm or the best quality product in the industry. 8- Intermediate Range plan considered is the objectives that firm is striving to achieve in the next 3 -5 year increasing sales volume, increasing assets base and expanding product lines. 9 - The importance of the relevant range can be summarized by one statement: the relationship between costs and activity is assumed to be linear within the relevant range. As a result, management can estimate the total costs associated with any level of activity within the range. A Normal Approach to Budget Preparation 1- Budgeted operating period coincides with the calendar year, then meeting is usually held late in the year, perhaps in October or November, to formalize the budgets for each segment or Department in the organization and for the entire organization.
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