NChapterStu+6 - l 2003 Prentice Hall Business Publishing,...

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Click to edit Master subtitle style 7/8/11 l 2003 Prentice Hall Business Publishing, Using Budgets to Achieve Organizational Objectives Chapter 6
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7/8/11 l 2003 Prentice Hall Business Publishing, The Budgeting Process A budget is a quantitative expression of the money inflows and outflows that reveal whether a financial plan will meet organizational objectives Budgeting is the process of estimating money inflows and outflows and determine a financial plan that will meet objectives
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7/8/11 l 2003 Prentice Hall Business Publishing, The Role of Budgeting Organizational Objectives and Short Term Goals Long-term strategy and short- term plans Develop Master Budget Measure Performance against budget Reevaluate objectives, goals, strategy, and plans Plannin g Contr ol
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7/8/11 l 2003 Prentice Hall Business Publishing, 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 l These do not supply the firm with capacity but they do provide support for the organization’s strategy by enhancing its performance potential l Once authorized, discretionary spending
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7/8/11 l 2003 Prentice Hall Business Publishing, The Budgeting Process Budgets help to anticipate potential problems l Budgeting reflects the cash cycle and provides information anticipate borrowing needed to finance the inventory buildup early in the cash cycle l If budget planning indicates that the organization’s sales potential exceeds its manufacturing potential, then the organization can develop a plan to put more capacity in place or to reduce planned sales
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7/8/11 l 2003 Prentice Hall Business Publishing, The Elements of Budgeting Budgeting involves forecasting the demand for four types of resources over different time periods: 1. Flexible resources that create variable costs 2. Intermediate-term capacity resources that create capacity-related costs 3. Resources that, in the intermediate and long run enhance the potential of the organization’s strategy 4. Long-term capacity resources that create capacity-related costs
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7/8/11 l 2003 Prentice Hall Business Publishing, Master Budget Two major types of budgets comprise the master budget: l Operating budgets - summarize the level of activities such as sales, purchasing, and production l Financial budgets - identify the expected financial consequences of the activities summarized in the operating budgets
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7/8/11 l 2003 Prentice Hall Business Publishing, Steps in Developing an Demand Forecast- an estimate of the sales demand at a specified selling price Sales plan - identifies the planned level of sales for each product (Revenues Budget) Production plan - schedules all required production Materials purchasing plan - schedules all required purchasing activities
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7/8/11 l 2003 Prentice Hall Business Publishing, Steps in Developing Labor hiring and training plan - specifies the number of people the organization
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NChapterStu+6 - l 2003 Prentice Hall Business Publishing,...

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