031510_for_posting - Kattelus -Spring 2010 1 CH 8 Profit...

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Unformatted text preview: Kattelus -Spring 2010 1 CH 8 Profit Planning A managers dilemma If you are a manager of a company that has a participative budgeting process and your compensation is based on your performance, and performance is measured by how closely you meet targeted expenses for your responsibility area WOULD YOU PROPOSE: An ideal budget? A realistic budget? A budget with slack? A stretch budget? A budget is: Kattelus -Spring 2010 2 A detailed quantitative plan for acquiring and using financial and other resources over a specified forthcoming time period. The creation of a plan of action expressed in financial terms The use of budgets to control an organizations activity is known as budgetary control . Purposes of budgeting Communicate managements plans throughout the organization Forces managers to give planning top priority Provides a means of allocating resources to their most effective uses Uncovers potential bottlenecks Coordinates the activities of the entire organization Provides goals that serve as benchmark s for evaluating subsequent performance Kattelus -Spring 2010 3 Kattelus -Spring 2010 4 Role of the Budget as a: Planning tool: develop objectives and prepare various budgets to achieve those objectives Control tool: management takes steps to ensure the objectives are attained Communication tool (dashboards and balanced scorecards) Motivational tool (behavioral aspects) Kattelus -Spring 2010 5 Budgeting for Performance In a business, the performance indicator: is usually profit or NOI (EBIT or IBIT) shown on the income statement could also be some measure of going concern from the balance sheet, such as solvency or Kattelus -Spring 2010 6 Budgeting for Performance In nonbusiness organizations, such as cities or hospitals, the indicator could be nonfinancial outcomes. Examples: level of public safety for a city quality of patient care for a hospital On advantages of budgeting Which of the following is not an advantage of budgeting?...
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This note was uploaded on 10/17/2011 for the course ECON 101 taught by Professor Thompson during the Spring '11 term at Michigan State University.

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031510_for_posting - Kattelus -Spring 2010 1 CH 8 Profit...

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