wk6_ch6n - Ch 6: Budgeting Whatisabudget? Budget =...

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Ch 6: Budgeting
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What is a budget? Budget = quantitative expression of a firm’s plan of action for a specified period ideally, budgets are linked to company’s strategy
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Why use a budget? Planning operational plans (short-term) capital budgets (long-term) company strategy * coordination and communication among subunits within the company Control and performance evaluation management by exception variances: actual vs budgeted performance not just “who is to blame” but also “what can we learn”! Motivation for managers and other employees
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Preparing  the budget:  Road map
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Revenues budget Choose prices, estimate projected unit sales at these prices => revenues = unit sales * price unit sales price total revenues Casual 50,000 $600 $30,000,000 Deluxe 10,000 800 $8,000,000 Total $38,000,000
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Production budget (in units) Decide on target ending FG inventory budgeted production = budgeted sales + + target ending FG inventory – - beginning FG inventory Casual Deluxe budgeted sales 50,000 10,000 + target ending FG inventory 11,000 500 = total required units 61,000 10,500 - beginning FG inventory 1,000 500 = units of FG to be produced 60,000 10,000
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DM usage budget Decide on budgeted amounts of DM per unit of FG, estimate DM prices Casual: 12 board-feet of oak, 6 square feet of granite Deluxe: 12 b.f. of oak, 8 s.f. of granite DM usage budget (in physical units): DM usage budget in $: multiply by budgeted DM prices red oak granite
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wk6_ch6n - Ch 6: Budgeting Whatisabudget? Budget =...

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