Ch15SM - CHAPTER 15 DISCUSSION QUESTIONS 15-1 Q15-1. Profit...

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Unformatted text preview: CHAPTER 15 DISCUSSION QUESTIONS 15-1 Q15-1. Profit planning encompasses (a) sales estimat-ing and sales planning programs; (b) budgeting programs for control of all costs, both manufac-turing and nonmanufacturing; (c) planning and programming additions to or deletions from working capital and plant investment; and, (d) a review of all factors that have an impact on return on investment, both from a short-term viewpoint of one year and longer periods of time. The profit-planning function must not be merely financial in scope. It must disclose the methods and programs by which the financial goals are to be achieved. Q15-2. A budget is the expected target that manage-ment strives to achieve, whereas a forecast is a level of revenue or cost that an organization predicts will occur. Q15-3. The three approaches for setting profit objec-tives are: (a) A pr ior i. Management specifies a given rate of return to be achieved in the long run and then draws up plans for achieving that rate. (b) A poster ior i. Management draws up plans and then sets the rate resulting from the plans. (c) Pr agmatic. Management uses a target profit standard that has been tested empirically and sanctioned by experience. Q15-4. Long-range planning deals with specific areas of the companys plans, such as future sales, long-term capital expenditures, research and development activities, finan-cial requirements, and the profit goal. Short-range budgeting places the planning and particularly control into periods of three, six, or twelve months. Q15-5. A budget is a detailed financial statement of the organizations strategy. It converts general strategy statements into specific plans of action, measured financially. It is related to control, because it is the fundamental guide-line for what the organization should do.Thus, it is the benchmark against which actual perfor-mance is compared. This process of compari-son is a vital part of the control function in the organization. Q15-6. In carrying out managements functions of planning, organizing, and control for the development of a budgetary control program, it is necessary to: (a) organize the budget committee (b) organize the entire budgetary control program (c) plan sales with the sales manager (d) determine the finished goods inventory requirement in harmony with the sales budget (e) plan production with the production man-ager based on the sales budget (f) meet with heads of all departmentsboth producing and servicerelative to direct materials, direct labor, and factory over-head costs required for the production budgeted (g) establish materials purchase require-ments based on production planning, a departments materials requirements, or the production budget (h) establish expense budgets with marketing, administrative, and financial division heads (i) budget capital expenditures and prepare a research and development budget....
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This note was uploaded on 03/15/2012 for the course ACCOUNTING 620 taught by Professor Smith during the Spring '11 term at Alabama A&M University.

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Ch15SM - CHAPTER 15 DISCUSSION QUESTIONS 15-1 Q15-1. Profit...

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