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chapter%2090 - Chapter 9 Profit Planning 1 Accounting 2102...

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September 7, 2011 Accounting 2102 1 Chapter 9 Profit Planning
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All businesses should prepare budgets . What is a BUDGET . . . a quantitative plan based on a company’s strategic plans . . . it provides the information managers need for planning, controlling, and decision making Why budget? to plan for decision making for performance evaluation to communicate and coordinate September 7, 2011 Accounting 2102 2
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Participative Budgeting allow employees to participate in the process to maximize goal congruence ADVANTAGES improved information greater motivation DISADVANTAGES budgetary slack concerns offer incentives for meeting realistic objectives controllable costs myopic behavior concerns September 7, 2011 Accounting 2102 3
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The Master Budget . . . a comprehensive financial plan September 7, 2011 Accounting 2102 4 Operating Budgets sales, production, DM purchases, DL, MOH, S&A, ending FG, COGS, income statement Financial Budgets cash, balance sheet, capital expenditures
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Sugar High, Inc. is a manufacturer of candy and is preparing its master budget for the coming year. Sugar High’s sales department has made the following sales forecast: April, 20,000 units; May, 50,000 units; June, 30,000 units; July, 25,000 units; August, 15,000 units. All units sell for $10 each. Ending finished goods inventory in units should be 20% of the next month’s unit sales. Each unit produced during the period requires 5 ounces of raw material. Each ounce costs $0.40 from the supplier. Sugar High, Inc. would like raw materials on hand at the end of each month to equal 10% of the following month’s raw material needs. Each unit produced during the period requires 0.1 hours of direct labor at an average
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chapter%2090 - Chapter 9 Profit Planning 1 Accounting 2102...

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