Chapter 8: Profit Planning, Budgeting

Detailed plan for the future

used for both planning and control

Developing goals and various budgets to achieve those goals

Gathering feedback to ensure the plan is being properly executed or modified as cirumstances change

1. communicate plans
2. fhink about and plan for the future
3. allocates resources to parts of organization that can be used most effectively
4. uncover potential bottlenecks
5. coordinates activities by integrating plans so the whole organization is pulling in the same direction
6. serve as benchmarks

Cost: cost
profit: revenues and costs
investment: revenue, cost, invement in working capital

A manager should be responsible for those items that he can control to a significant extent

One year period corresponding to the company's fiscal year.

12 month budget that rolls forward one month/quarter to keep managers focused one year ahead

Budget that is prepared with the full cooperation and participation of managers at all levels.

flow is from lower levels up to higher levels
(bi-directional)

1. all individuals of all levels are involved
2. budget by frontline managers is more accurate and reliable
3. higher motivation
4. no excuses for goals not met since it was self imposed

Natural tendancy to create budgetary slack

1.Sales budget
2. Manufacturing budget
a. production
b. DM
c. DL
d. OH
3. SA
4. Cash budget
5. financial statements

Called "static budgeting"

Shows expected sales for the budget period

all other parts of budget depend on sales budget

determines how many units need to be produced

cash collections

Used to determine the budgets for manufacturing costs in DM, DL, OH

lists the number of units that must be produced to satisfy sales needs and to provide for desired ending inventory