Chapter 22 - Answer - MANAGEMENT ACCOUNTING Solutions...

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MANAGEMENT ACCOUNTING - Solutions Manual CHAPTER 22 BUSINESS PLANNING I. Questions 1. Strategy, plans, and budgets are interrelated and affect one another. Strategy describes how an organization matches its own capabilities with the opportunities in the marketplace to accomplish its overall objectives. Strategy analysis underlies both long-run and short-run planning. In turn, these plans lead to the formulation of budgets. Budgets provide feedback to managers about the likely effects of their strategic plans. Managers use this feedback to revise their strategic plans. 2. Budgeted performance is better than past performance for judging managers. Why? Mainly because the inefficiencies included in past results can be detected and eliminated in budgeting. Also, new opportunities in the future, which did not exist in the past, may be ignored if past performance is used. 3. A company that shares its own internal budget information with other companies can gain multiple benefits. One benefit is better coordination with suppliers, which can reduce the likelihood of supply shortages. Better coordination with customers can result in increased sales as demand by customers is less likely to exceed supply. Better coordination across the whole supply chain can also help a company reduce inventories and thus reduce the costs of holding inventories. 4. The sales forecast is typically the cornerstone for budgeting, because production (and, hence, costs) and inventory levels generally depend on the forecasted level of sales. 5. Sensitivity analysis adds an extra dimension to budgeting.
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This note was uploaded on 07/18/2011 for the course ECON 102 taught by Professor Sadassad during the Spring '11 term at Abant İzzet Baysal University.

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Chapter 22 - Answer - MANAGEMENT ACCOUNTING Solutions...

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