MGT 170 Chp 9

What is budgeting?

A process to formalize plans and translate qualitative narratives into a documented, quantitative form

What is a budget?

The end result of budgeting

Quantitatively expresses a commitment to planned activities and resource acquisition and use

In what ways do budgets help managers?

1. Communicates directions and goals

2. Judges performance

3. Motivates employees to achieve goals

4. Promotes employee participation

What is strategic planning?

Top-level management produces a statement of long term goals, strategies, and polices for the next 5-10 years

What are tactical plans?

Determines how strategy will be achieved in the short term (1 to 18 months)

What’s a master budget?

1. a comprehensive set of operating and financial budgets

2. Prepared for a specific time period

3. it is static (base on a single level of output demand)

4. it is interactive (departments generate and consume information)

What are a few operating and financial aspects of the master budget?

Operating:

1. sales budget

2. production budget

3. purchases budget

Financial:

1. statement of cash flows

2. balance sheet

3. income statement

What are the steps of the master budget in order

1. Sales budget

2. Production Budget

   1. Purchases Budget,

   2. Direct Labor Budget,

   3. Overhead Budget

3. Selling and Admin Budget

Why is the cash budget important?

Highlights importance of cash for the organizations existence

Translate accrual-based info into cash flows

Indicates effectiveness of credit practices

Allows for planned cash borrowing or investing

Used to prepare pro forma cash flow statement