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Chapter 8

Chapter 8. Budgetary Planning. Planning Developing objectives for acquisition and use of resources. Control Steps taken by management to ensure that objectives are attained. Role of Budgets in the Planning and Control Cycles.

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Chapter 8

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  1. Chapter 8 Budgetary Planning

  2. Planning Developing objectives for acquisitionand use of resources. Control Steps taken by management to ensure that objectives are attained. Role of Budgets in the Planning and Control Cycles A budget is a comprehensive financialplan for achieving the financial andoperational goals of an organization.

  3. Planning and Control Cycle

  4. Planning Process StrategicPlan Long-termObjectives Short-termObjectives Tactics

  5. Benefits of Budgeting

  6. Budget Problems Perceived unfair or unrealistic goals. Poor management-employee communications. Solution Reasonable and attainable budgets. Employee participation in budgeting process. Behavioral Effects of Budgets

  7. Budget Problems Building budget slack into budgets. A “use-it-or-lose-it” mentality. Solution Different budgets for planning and for performance evaluation. Continuous, or rolling budgets. Zero-based budgeting. Behavioral Effects of Budgets

  8. Components of the Master Budget

  9. EstimatedUnit Sales EstimatedUnit Price Analysis of economic and market conditions+Forecasts of customer needs from marketing personnel Sales Budget SalesBudget

  10. Production Budget The production budget is directly related to the sales budget and to the quantity of inventory the company wants to have on hand at the beginning and end of each period. The relationship between budgeted production, sales, and inventory is summarized in the following formula:

  11. Raw Materials Purchases Budget Next, we must determine what quantity of raw materials to purchase to use for the production budget. Budgeted material purchases will depend on budgeted production needs, as well as on the planned levels for beginning and ending raw materials inventory. The relationship between budgeted raw material purchases, budgeted production, and raw materials inventory is summarized in the following formula:

  12. Cash Budget Our focus is on cash flows that arise from operating activities and are directly related to the operating budgets for Cold Stone Creamery. The relationship between budgeted cash collections and budgeted cash payments from operating activities and cash balances is summarized in the following formula:

  13. Budgeting in Non-Manufacturing Firms The primary operating budget for a merchandiser is amerchandise purchases budget, which is similar in formto a raw materials purchases budget for a manufacturer. Since a merchandising company does not manufacture, it does not have raw material, direct labor, and manufacturing overhead budgets.

  14. End of Chapter 8

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