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Unformatted text preview: CHAPTER 9 PROFIT PLANNING DISCUSSION QUESTIONS 1. Budgets are the quantitative expressions of plans. Budgets are used to translate the goals and strategies of an organization into operational terms. 2. Control is the process of setting standards, receiving feedback on actual performance, and taking corrective action whenever actual performance deviates materially from planned performance. Budgets are stand- ards, and they are compared with actual costs and revenues to provide feedback. 3. The planning and control functions of budgeting can benefit all organizations, re- gardless 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 addition, organiza- tions can compare what actually happens with what was planned to see if the plans are unfolding as anticipated. This is the con- trol function of budgeting. 4. Budgeting forces managers to plan, provides resource information for decision making, sets benchmarks for control and evaluation, and improves the functions of communication and coordination. 5. A master budget is the collection of all indi- vidual area and activity budgets. Operating budgets are concerned with the income- generating activities of a firm. Financial budgets are concerned with the inflows 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 forecast, management may decide that the firm can do better than the forecast indicates. Consequently, ac- tions may be taken to increase the sales po- tential for the coming year (e.g., increasing advertising). This adjusted forecast then be- comes the sales budget. 7. Yes. All budgets are founded on the sales budget. Before a production budget can be created, it must have the planned sales. The manufacturing budgets, in turn, depend on the production budget. The same is true for the financial 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 organiza- tion are working toward the goals of that or- ganization. 9. Frequent feedback is important so that cor- rective action can be taken, increasing the like- lihood of achieving budgetary goals. 10. Both monetary and nonmonetary incentives are used to encourage employees of an or- ganization to achieve the organizations goals. Monetary incentives appeal to the economic needs of an individual, and non- monetary incentives appeal to the psycholo- gical needs. Since individuals are motivated by both economic and psychological factors, both types of incentives ought to be present in a good budgetary system....
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- Spring '08