ch10s - Using Budgets to Achieve Organizational Objectives...

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Using Budgets to Achieve Organizational Objectives Chapter 10
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Types of Budgets Types of Budgets Strategic plan Strategic plan Long-range planning Long-range planning Capital budget Capital budget Master budget Master budget Continuous budget  Continuous budget  Learning Learning Objective 5 Objective 5
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Strategic Plan The most forward-looking budget is the strategic plan, which sets the overall goals and objectives of the organization. The strategic plan leads to long-range planning, which produces forecasted financial statements for five- to ten-year periods.
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Master Budget The master budget is a detailed and  comprehensive analysis  of the first year of the long-range plan.   It summarizes the planned activities of all subunits of an organization.
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Operating budget (Profit plan). . . Financial budget. . . Master Budget Focuses on the  Income Statement  and supporting  schedules or  budgeted expenses. Focuses on the effects  that the operating  budget and other plans  will have on cash  balances.
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Steps in Preparing the Master Budget 1. Basic data Learning Objective 6
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Steps in Preparing the Master Budget 1. Basic data a. Sales budget b. Cash collections from customers c. Purchases and cost-of-goods sold budget d. Cash disbursements for purchases e. Operating expense budget f. Cash disbursements for operating expenses The principal steps in preparing the master budget:
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Operating Budget Sales budget Learning Objective 7
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The Budgeting Process The process that determines the planned level of most flexible costs Budgeting also includes discretionary spending such as for R&D, advertising, and employee training
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The Budgeting Process Budgets serve as a control for managers Budgets reflect in quantitative terms how to allocate financial resources to each part of an organization
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The Budgeting Process A budget is a quantitative expression of the money inflows and outflows Budgets provide a way to communicate the organization’s short-term goals to its members
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The Budgeting Process Budgeting the activities of each unit can Reflect how well unit managers understand the organization’s goals coordinate the many activities of an organization
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The Budgeting Process Budgets help to anticipate potential problems Cash cycle? Does budget planning indicates that the organization’s sales potential differs from manufacturing potential?
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Master Budget Two major types of budgets comprise the master budget: Operating budgets - summarize the level of activities such as sales, purchasing, and production Financial budgets - identify the expected financial consequences of the activities summarized in the operating budgets
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Operating Budgets Sales plan - identifies the planned level of sales for each product Capital spending plan - specifies the long- term capital investments that must be paid
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This note was uploaded on 11/16/2010 for the course ECN 5050 taught by Professor Yamashita during the Spring '10 term at Nova Southeastern University.

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ch10s - Using Budgets to Achieve Organizational Objectives...

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