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Unformatted text preview: CHAPTER 7 PROFIT PLANNING DISCUSSION QUESTIONS 1. Budgets are the quantitative expressions of plans. Budgets are used to translate the goals and strategies of an organiza- tion into operational terms. 2. Control is the process of setting stand- ards, receiving feedback on actual per- formance, and taking corrective action whenever actual performance deviates materially from planned performance. Budgets are standards, and they are compared with actual costs and reven- ues to provide feedback. 3. The planning and control functions of budgeting can benefit all organizations, regardless of size. All organizations need to determine what their goals are and how best to obtain those goals. This is the planning function of budgeting. In ad- dition, organizations can compare what actually happens with what was planned to see if the plans are unfolding as anti- cipated. This is the control function of budgeting. 4. Budgeting forces managers to plan, provides resource information for de- cision making, sets benchmarks for con- trol and evaluation, and improves the functions of communication and coordin- ation. 5. A master budget is the collection of all in- dividual area and activity budgets. Oper- ating budgets are concerned with the in- come-generating activities of a firm. Fin- ancial budgets are concerned with the in- flows and outflows of cash and with planned capital expenditures. 6. The sales forecast is a critical input for building the sales budget. However, it is not necessarily equivalent to the sales budget. Upon receiving the sales fore- cast, management may decide that the firm can do better than the forecast indic- ates. Consequently, actions may be taken to increase the sales potential for the coming year (e.g., increasing advert- ising). This adjusted forecast then becomes the sales budget. 7. Yes. All budgets are founded on the sales budget. Before a production budget can be cre- ated, it must have the planned sales. The man- ufacturing budgets, in turn, depend on the pro- duction budget. The same is true for the finan- cial budgets since sales is a critical input for budgets in that category. 8. Goal congruence is important because it means that the employees of an organization are work- ing toward the goals of that organization. 9. Frequent feedback is important so that correct- ive action can be taken, increasing the likeli- hood of achieving budgetary goals. 10. Both monetary and nonmonetary incentives are used to encourage employees of an organiza- tion to achieve the organization’s goals. Monet- ary incentives appeal to the economic needs of an individual, and nonmonetary incentives ap- peal to the psychological needs. Since individu- als are motivated by both economic and psy- chological factors, both types of incentives ought to be present in a good budgetary sys- tem....
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This note was uploaded on 05/26/2011 for the course ACCT 2102 taught by Professor Farmer during the Spring '08 term at University of Georgia Athens.

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