Budgeting - Budgeting Concepts Budget (profit plan) is:...

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Budgeting Concepts Budget (profit plan) is: Planning Tool -it expresses future -anticipate problems before occur. Control Tool -it helps organization to control costs. Motivational Tool -especially if the budget plan is realistic, flexible, and if employees involved help preparing it Communication Tool -it helps tell the employees what goals the firm is attempting -it enhances communications between department Types of Plans Strategic Plan: is done initially on a long-term basis, it’s broad, general, long-term plans (usually five years or longer) and based on the objectives of the organization. Strategic planning is done by the company's top management. This type of planning is neither detailed nor focused, but instead looks at the strategies, objectives and goals of the company by examining both the internal and external factors. Part of this strategic plan will be a review of the capacity (the ability of the company to produce its products ) and the capital resources (the company's fixed assets) of the company. Strategic planning is directional, rather than operational. Intermediate or Tactical Plan The strategic plan is broken down into intermediate or tactical plans (one to five years), which are designed to implement specific parts of the strategic plan. Tactical plans are made by upper and middle managers. Short-Term or Operational Plan Short-term or operational plans (one week to one year) are developed from the tactical plans. Operational plans focus on implementing the tactical plans to achieve operational goals, and operational plans include budgeted amounts. It is operational plans that drive the day-to-day operations of the company. Operational plans are developed by middle and lower-level managers. Short-term or operational plans are the primary basis of budgets Single-purpose plan which are developed for a specific item such as construction of a fixed asset, the development of a new product or the implementation of a new accounting system. Standing-purpose plans have relevance and use for many different items. Plans such as marketing and operation plans fall into this category. Contingency planning is planning that a company develops to prepare for possible future events (especially negative events). This is in a sense 'what if?" planning. A contingency plan enables companies to respond quickly and in the best possible manner. The Relationship among Planning, Budgeting and Performance Evaluation 1-Management Develop the plan: I. Formulating the mission statement II. Drawing the strategic plan which made of long-term objectives III. when objectives are in place the priority of the organization will be clear which aid in allocation of limited resources IV. Short term objectives follow directly the priorities 2-Formulation of the Budget which is plan of the future in quantitative terms 3-Performance Evaluation by comparing actual results to the budget. Master Budget = Budgeted Balance Sheet
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Budgeting - Budgeting Concepts Budget (profit plan) is:...

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