Comprehensive Guide to Short-Range, Long-Range, and Financial Planning in Business

What is the time frame typically covered by a short-range plan?

The next twelve months.

What key factors do companies consider when creating a short-range plan?

Market volatility, stability of operations, and rate of technological change.

What are some components that a short-range plan forecasts?

Sales, raw materials requisition, raw materials purchase, desired inventory balances, salaries and wages, and operating expenses.

How does a short-range plan serve a company at the end of the year?

It acts as a control device to measure the differences between the action plan and actual performance.

What is the typical time frame for a long-range plan?

Two to five years or more.

Why is a long-range plan considered more difficult and prone to errors?

It covers a longer time frame and is affected by environmental changes, people's needs, management composition, and political stability.

What is the purpose of a long-range plan for a company?

To guide long-term goals and assess progress against past plans.

How often is a long-range plan typically revised?

Usually revised every year to incorporate new perceptions about the future.

What is the financial plan also known as?

A budget.

What does budgeting transform planned actions into?

Quantitative terms, specifically in the form of money.

What is the purpose of a financial plan in a company?

To direct operations and measure periodic or annual performance.

What is the zero-based approach to financial planning?

A budgeting method where the previous year's budget is irrelevant, and all expenses must be justified from a zero baseline.

What does a financial plan summarize?

Expected sales, expenses, production, and other financial transactions for a certain period.

How does a company use actual operations records?

To gather information on different units and analyze variances from the financial plan.

What corrective actions may be taken if there is a variance between the financial plan and actual performance?

Corrective actions are adopted as needed based on variance analysis.

What is a key difference between short-range and long-range plans?

Short-range plans require more detail, while long-range plans do not.

What does a short-range plan help a company analyze?

Differences in the action plan and actual performance.

What are the implications of environmental changes on long-range planning?

They can significantly affect the planning process and outcomes.

What is the role of top management in financial planning?

To review summarized reports of actual operations and variances.

Why is it important for a company to have a long-range plan despite potential errors?

It provides a framework for long-term goals and helps assess progress.

What is the significance of presenting financial statements in terms of years for long-range planning?

It aligns with the time frame of the long-range plan and aids in long-term financial management.