Mowen--Chapter #9 - Chapter Nine Profit Planning Learning...

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Unformatted text preview: Chapter Nine Profit Planning Learning Objectives 1. Define budgeting and discuss its role in planning, control, and decision making. 2. Define and prepare the operating budget, identify its major components, and explain the interrelationships of its various components. 3. Define and prepare the financial budget, identify its major components, and explain the interrelationship of its various components. 4. Describe the behavioral dimension of budgeting. OBJECTIVE 1 Define budgeting and discuss its role in planning, control, and decision making. Budgeting and Planning and Control Planning and control are tied together Looking ahead to see what actions should be taken to realize particular goals Planning Budgeting and Planning and Control Planning and control are tied together Looking backward determining what actually happened and comparing it with the previously planned outcomes Control Budgets A key component of planning Financial plans for the future Identify the objectives and the actions needed to achieve them Before a budget is prepared, a strategic plan should be developed. Strategic Plan Identifies strategies for future activities and operations This can be translated into long- and short-term objectives Objectives form the basis of the budget. Advantages of Budgeting 1.Forces managers to plan 2.Provides information that can be used to improve decision making 3.Provides a standard for performance evaluation 4.Improves communication and coordination Master Budget Comprehensive financial plan for the organization as a whole Can be broken down into quarterly and monthly budgets Continuous Budget A moving 12-month budget. January 2007 February 2007 December 2007 January 2008 . Budget Committee Reviews the budget Provides policy guidelines and budgetary goals Resolves differences that arise as the budget is prepared Approves the final budget Monitors the actual performance of the organization as the year unfolds Budget Director Responsible for directing and coordinating the organizations overall budgeting process Usually the controller Major Components of the Master Budget Operational budgets Describe the income-generating activities of a firm Financial budgets Detain the inflows and outflows of cash and the overall financial position Master budget can be divided into OBJECTIVE 2 Define and prepare the operating budget, identify its major components, and explain the interrelationships of its various components. Example: Sales Budget Information: Budgeted units to be sold for each quarter: 1,000; 1,200; 1,500; and 2,000. Selling price is $10 per t-shirt. Required: Prepare a sales budget for each quarter and for the year. Sales Budget Projection approved by the budget committee that describes expected sales in units and dollars It is the basis for all of the other operating and most of the financial budgets Sales Budget Preparation Steps 1. Develop a sales forecast...
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Mowen--Chapter #9 - Chapter Nine Profit Planning Learning...

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