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Evaluating
Decision Making
Controlling
Decision Making
Planning
Planning -- involves Evaluate Decision developing objectives Evaluating Performance Making and preparing various budgets to achieve these objectives. Measure
Controlling Performance
the
management that attempt to ensure the Organizing & Implement Decision objectives areDirecting attained. Plans Making
Control
Decision Making
Implement Plans
Measure Performance
Evaluate Performance
Decision Making
Implement Plans
Measure Performance
Evaluate Performance
Decision Making
Measure Performance
Decision Making
A Budget is . . .
A quantitative expression of a plan of action.
A detailed plan for acquiring and using financial and other resources over a specified time period (text).
Now
1 Year
5 Years
Strategic Planning
Selecting overall objectives. Choosing what markets to be in. Selecting what products to produce. Determining the price/quality mix. Deciding which technologies to use.
Budgets . . .
Continuum
Participatory Budgets
Right to comment before implementation Ultimate right to set budgets
Continuum
Advantages . . .
Requires less time.
Utilize top managements knowledge of overall resource availability. Increase probability that the firms strategic plans are incorporated.
Disadvantages . . .
Reduce feeling of teamwork.
Dissatisfaction and low morale.
Limited acceptance of stated goals and objectives. May stifle initiative of lower level managers.
In well-established organizations.
In extremely large businesses.
Advantages . . .
Obtain information from those persons most familiar with the needs and constraints of the organizational units.
Leads to better morale and higher motivation.
Advantages . . .
Integrates knowledge that is diffused among various levels of management. Provides a means to develop fiscal responsibility and budgetary skills of employees.
Advantages . . .
Develop a high degree of acceptance of and commitment to organizational goals and objectives by operating management.
Are generally more realistic.
Disadvantages . . .
Require significantly more time.
May motivate managers to introduce slack into the budget. May support empire building by subordinates.
Advantages of Budgeting
Define goal and objectives Communicating plans Think about and plan for the future
Advantages
Coordinate activities Uncover potential bottlenecks Means of allocating resources
Sales Budget
EI Budget
Production Budget
DM Budget
DL Budget
Overhead Budget
Cash Budget
Capital Budget
Tom Willis is the majority stockholder and chief executive officer of Hampton Freeze, Inc., a company he started in 2001. The company makes premium popsicles using only natural ingredients and featuring exotic flavors such as tangy tangerine and minty mango. The companys business is highly seasonal, with most of the sales occurring in spring and summer.
In 2002, the companys second year of operations, a major cash crunch in the first and second quarters almost forced the company into bankruptcy. In spite of this cash crunch, 2002 turned out to be overall a very successful year in terms of both cash flow and net income.
With the full backing of Tom Wills, Larry Giano set out to create a master budget for the company for the year 2003. In his planning for the budgeting process, Larry drew up the following list of documents that would be a part of the master budget.
1 6 2 7
8 9
10
A budget showing the number of units, sales price and total sales for each quarter (or month).
Research into the history of cash collections at Hampton Freeze indicated that
70% of sales are collected in the quarter in which the sale is made and the remaining 30% are collected in the following quarter.
A budget showing the number of units that must be produced during each budget period to meet sales needs and to provide for the desired ending inventory.
BI of Finished Units
Hampton Freeze would like the ending inventory of finished goods to be equal to 20% of next quarters sales. The company has 2,000 units of beginning inventory.
Desired Ending Inventory of Finished Goods equals 20% of next quarters sales.
Ending Inventory for one quarter equals Beginning Inventory for next quarter.
BI of Raw Materials
Hampton Freeze has established a policy of maintaining RM equal to 10% of the amount required for production in the subsequent quarter.
In the first quarter the company plans on producing 14,000 units (from the production budget) Each unit requires parts costing $0.20.
To prepare the Schedule of Expected Cash Disbursements for Materials, Hamptons policy is to
Pay for 50% of purchases in the quarter in which the purchase is made, and
Pay the remaining 50% in the following quarter.
A budget showing the direct labor hours (and total amount) needed to produce the number of units specified in the production budget.
Each case produced requires 0.4 direct labor hour. Each hour costs $15
A budget showing all costs of production other than direct materials and direct labor.
A budget showing the carrying cost of the unsold units remaining in inventory.