1 / 15

Planning & Decision Making

Planning & Decision Making. Chapter 8. Terms to Know. Budget Cash Flow Cash Flow Budget Cost Behavior Credit Enterprise Budget Expense Fixed Costs Goals Income Statement Budgets. Inventory Net Income Partial Budget Relevant Range Resources Revenue

eerick
Download Presentation

Planning & Decision Making

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript


  1. Planning & Decision Making Chapter 8

  2. Terms to Know • Budget • Cash Flow • Cash Flow Budget • Cost Behavior • Credit • Enterprise Budget • Expense • Fixed Costs • Goals • Income Statement Budgets • Inventory • Net Income • Partial Budget • Relevant Range • Resources • Revenue • Systemic Decision Making Process • Variable Costs • Whole Business Budget

  3. The Decision-Making Process 1. Planning (preparing a budget) 2. Deciding (select a course of action to follow) 3. Evaluating (comparing your budget to actual results)

  4. Purpose of a Budget • The purposes of a budget are to: • 1. formulize your plans. • 2. communicate your plans. • 3. evaluate your performance. • 4. coordinate your activities.

  5. Variable and Fixed Costs • Variable costs: the costs that change as production changes • Examples: fuel, soil, feed, fertilizer, medicines • Fixed costs: the costs that remain constant as production changes • Examples: wheelbarrow, gates, shovel, feed pan

  6. Budgets Two types of budgets: income statement budget and cash flow budget Primary format used is the enterprise budget (a format of an income statement budget)

  7. Systematic Planning • 1. Planning • Define the problem • Gather information about alternative solutions • Evaluate alternative solutions • 2. Deciding • Choose alternatives consistent with goals and objectives • Implement solution • 3. Evaluating • Analyze the consequences • Accept the consequences

  8. Goal A definite statement that identifies activities, enterprises, and other achievable levels that you aspire toward.

  9. Guidelines for making financial goals 1. Determine goals based on wants and needs 2. Set a timeline 3. Prioritize goals 4. Realistic & attainable 5. Compatibility (w/ business & family, needs) 6. Make the goal definite & measurable

  10. I Cash flow budget • A. Estimate income and expenses during a future time period • B. Estimate when cash will need to be borrowed and when it can be repaid • 1. Develop a borrowing and debt repayment plan • 2. Rearrange purchases and scheduled debt repayments to minimize borrowing • 3. Combines both business and personal financial affairs into one complete plan • 4. Help spot an imbalance between current and non-current credit

  11. II Parts of a cash flow budget • A. Expected cash income • B. Expected cash expenses • C. Includes all business and personal income and expenses • D. Lists total cash available

  12. I. Enterprise Budgeting • A. Purpose of an enterprise budget • 1. Determine financial needs of the enterprise • 2. Determine how much will be spent in each part of the enterprise • 3. Documentation to leaders of how money will be spent • 4. Guide to live by for spending • 5. The bottom-line figure (estimated profit or return to management) can be compared to other enterprises to see which would be most profitable

  13. I. Enterprise Budgeting • B. Four sections of the enterprise budget • 1. Income • 2. Variable costs • 3. Fixed costs • 4. Profit or return

  14. I. Enterprise Budgeting • C. Development of an enterprise budget • 1. Estimate total revenue • a. Estimate expected yield • 2. Estimate total variable costs • a. Feed, seed, fertilizer • b. Fuel, repairs, labor • c. Include non-cash items • (1) opportunity cost • (2) owner/operator time • (3) farm-raised feed • 3. Determine fixed cost • a. Depreciation, taxes, interest, insurance • 4. Estimated net returns = total revenues – variable costs – total fixed costs

  15. I. Enterprise Budgeting • D. Using the enterprise budget • 1. Covers at least one production cycle • 2. Estimates overall profitability • a. Compare enterprise budget to determine highest returns • b. Use to minimize losses • (1) due to fixed costs, negative returns may not mean don’t produce • (2) opportunity costs also can produce a negative return • (3) short term losses may be acceptable in certain production cycles • 3. Break-even • a. Break even points can be determined by substituting possible changes in the budget • (1) break-even yield = total costs ÷ price • (2) break-even price = total costs ÷ expected yield

More Related