chapter 7 lecture notes

G marketing and manufacturing requires managers to

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Unformatted text preview:   Delegate decision making Purposes of Budgets – Coordination (Communication) •  Master budget coordinates the various business functions (e.g. marketing and manufacturing) •  Requires managers to think of relationships among individual operations, departments and the company as a whole •  For coordination to succeed, communication is essential •  All management levels participate in compiling, reviewing, and revising budget data Purposes of Budgets – Control (Performance Eval & Feedback) •  Budgets provide a reference point (benchmark) to evaluate actual performance v༇  Performance can be benchmarked at various levels v༇  Company v༇  Function v༇  Department (manager) •  Performance in relation to budget can impact job retention, promotion, bonus, etc. Purposes of Budgets – Inherent Conflict •  Budgets plan and control •  Link organization’s long term and short plans •  Communicate corporate objectives and link multiple departments •  Budgets become benchmarks for actual results •  Inherent tension between planning and control •  Sales manager may keep sales estimates low so can “beat the budget” •  Production manager may show costs high so can “beat the budget” •  Budget process must recognize and manage this behavior Mechanics of Budgets – Prepare a Master Budget v༇  What does the end product look like? v༇  If we are using the budget as a benchmark for actual activity – then the budget should be presented in a format like actual v༇  Our example: v༇  the Contribution Margin Stmt Mechanics of Budgets – Prepare a Master Budget v༇  Creating a budget involves many steps v༇  What do we need to budget? v༇  Revenue v༇  Production v༇  Direct Materials v༇  Direct Labor v༇ Manufacturing Overhead v༇  Variable Cost of Goods Manufactured v༇  Variable Cost of Goods Sold v༇  Marketing and Administrative Costs Preparing a Master Budget – Amarillo Toys - Info Create a master budget for Amarillo Toys – for the next calendar year Amarillo Toys makes plastic building blocks for children. Currently has two products BuildIT and BuildIT-PLUS. Both products come in the same colors. BuildIT-PLUS is made from a higher grade of plastic. Preparing a Master Budget – Step 1 - Revenue •  Begin at the top – revenue (units x selling price) •  Determine number of units expect to sell •  Determine selling price ...
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