...A budget is a financial plan of the resources needed to carry out tasks and meet financial goals. A master budget is part of an overall organization plan for the next year, made up of three components: (1) organizational goals, (2) the strategic long-range profit plan, and (3) the master budget (tactical short-range profit plan). Long-range plans are achieved in year-by-year steps. The guidance is more specific for the coming year than it is for more distant years. The plan for the coming year is called the master budget. The master budget is also known as the static budget, the budget plan, or the planning budget. The income statement portion of the master budget is often called the profit plan. The master budget indicates the sales levels, production and cost levels, income, and cash flows anticipated for the coming year. In addition, these budget data are used to construct a budgeted statement of financial position (balance sheet). Budgeting is a dynamic process that ties together goals, plans, decision making, and employee performance evaluation. The master budget and its relationship to other plans, accounting reports, and management decision-making processes are diagrammed in this diagram: Although each organization is unique in the way it puts together its budget, all budgeting processes share some common elements. After organizational goals, strategies, and long-range plans have been developed, work begins on the master budge, a detailed budget for the coming fiscal...
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...Strategy and the Master udget After studying this chapter, you should be able to ... LO 10-1 Describe the role of budgets in the overall management process LO 10-2 Discuss the importance of strategy and its role in the master budgeting process LO 10-3 Outline the budgeting process LO 10-4 Prepare a master budget and explain the interrelationships among its supporting schedules LO 10-5 Deal with uncertainty in the budgeting process LO 10-6 Identify unique characteristics of budgeting for service companies LO 10-7 Understand alternative approaches to budgeting (viz., zero-base, activity-based, time-driven activity-based, and kaizen budgeting} LO 10-8 Discuss various behavioral considerations in budgeting If you don't know where you're going, you'll end up somewhere else. A Yogi Berra Johnson & Johnson (J&J), one of the largest manufacturers of health care products in the world, started (in 1887) as a small manufacturer of health and well-being-related products. Today, it has more than 118,000 employees and more than 250 operating companies in 60 countries. J&J sells its products in more than 175 countries. Surveys conducted over the years by Business Week, Forbes, Fortune, and other business journals repeatedly rank J&J as one of the most innovative and well-managed firms in the world. How does J&J do it? It relies on a comprehensive formal planning, budgeting, and control system in formulating and implementing strategy, coordinating and monitoring operations...
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...This report analysis the feasibility analysis of Gourmet Gadgets for producing and marketing a new invention, pasta server. Gourmet Gadget Inc. is a startup that seeks a venture capitalist for additional funding to start its operations. We have constructed a complete master budgeting system for the company, starting from sales budget to projected balance sheet. We have found that the company will need $85,000 for smooth functioning including expansion of production facility. Based on the above mentioned figures and an analysis of the master budget, we suggest that the company should go for 50% ownership stake and receive $75,000 from Mr. Cohen. By the tenth month i.e. May 1990, however, they will need cash of $8,663 to fund the purchase of two-cavity production mould. Nevertheless, the decrease in production costs due to the new mould increases the profitability as well as cash position of the company. Case Introduction: Jointly owned by Ken and Mary Lanzetta, Gourmet Gadgets Inc. was founded in May 1989 to design, develop, manufacture and market the unique household utensil. The Lanzettas have already patented their invention in Canada and United States. They have also applied for patent registration in Europe. Initially, Gourmet Gadgets plans to market its products in Canada, with expansion plans for US, and Europe after the registration of patent. The Lanzettas have already financed long term assets and patent through personal loans, however, they need additional funding...
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...Master budgets. This is the projection of how management in the organization expects to business over the budget period; it’s usually a fiscal year.it summarizes the projected activity, this is through cash budget, income statement budget and the budgeted balance sheet. Master budgets will always include interrelated budgets from various departments in the organization. Its main purpose is to keep managers in larger organizations to be on the same page. Operational budgets. This type of budget covers the revenues and expenses mainly of the day-day business of the company. Revenues sales of products and services are represented by revenues while costs of goods sold, administrative costs; production costs are represented by expenses. Operating budgets are broken down into smaller reporting periods such as monthly. This will enable managers to compare ongoing operations results to the budget of the year hence enabling planning and adjustment in revenue. Cash flow budgets. These budgets are used to examine the inflows and outflows of cash in a business daily activities.it normally predicts ability for a company to take more money than it pays out.in order to pinpoint shortfalls between expenses and sales managers have to monitor cash flows budget. Production levels and production cycles are suggested by cash flow budgets; this is to enable company’s resources to be available for activity and not sitting idle in the company’s warehouses. Financial budgets. The outlines of how...
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...planning…………………..3 1.2 Describing BBC Master budget and its detailed content……………………………………..4 2.1 Tools used for making a sound and justified strategic investment decision…………….7 3.1Comparative balance sheet and income statement of BBC for 2012, 2011..………….9 3.2 Calculated Liquidity, Solvency and Profitability Ratios for both years…………..........……10 3.3 Conclusions and best recommendations……………………………………………………11 Sources……………………………………………………………………………………….13 Introduction Finance is considered one of the most important aspects (units) of any institution, as it pertains to the arts and science of managing money (Khan & Jain 2007). There are major areas of finance including; * Financial services; which deal with the delivery of advice and financial products to businesses, individuals etc within the areas of banking. * Financial management; which deals with the duties of financial managers, and the said managers are responsible for budgeting, financial forecasting, cash management etc (Khan &Jain 2007). Applicably therefore, without financial help, or without a budget, it will be impossible for BBC capacity building institute to implement any plans and strategies, no matter how good they are. This is so because budgeting entails planning and control, and without these BBC is bound to crash. 1.1 How budgeting can assist BBC training Institute in planning First and foremost it is important to note that a budget per BusinessDictionary.com is...
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...Task 1: One of the major tasks of the management accountant is to produce a budget. Explain why this is done and the type of information it should contain. A budget is a detailed plan for the acquisition and use of financial and other resources over a specified time period, which is prepared in advance by using past data (Seal, et al., 2015, p.462). Before starting to produce budgets, the organisation ought to ensure its overall strategic goals. To achieve these goals, firstly, its management accountant should create various budgets to reflect its expected future results. Then the organisation will take actions based on the strategy and the accountant could obtain the actual outcomes. Compared the actual outcomes with the expected results...
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...A budget is a comprehensive plan given in a quantitative term that directs where resources will be acquired and spent in a given period. It is a financial document which operates on income and expense basis. This document depends on the balancing of the monthly or yearly income and expenses. In this case, plan is used as the controller of what is going to happen while budget assess the performance of the required project. The meaning of setting a budget is to provide direction, improves efficiency, control finances and assign responsibilities to evaluate the business plans. Budgets are used by managers as s benchmark to measure up to the results of the definite operation. Budgetary areas that raise concern in the budget planning There were budgetary areas that raised an alarm in the budget planning of the Competition Bikes, Inc. one of the leading area was the forecasting of the transaction budget. The year 9 sale projection set at 3510. There a big is the difference in units of year 8 compared to year 7 with a decrease of 15% levels. Keeping in mind the current economic imbalance, the projected sales reading 3510 do not call for any support. This cannot happen because the professional rider’s sponsorship is at decline and is expected to undergo the same situation for another three years. These steps do not make sense at all and continuation of the support without the clear discussions and understanding on the way forward to increase sponsorship will no doubt lead to decline...
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...Table of contents Introduction 12 Body 13 3.1 Explain the purpose and nature of budgeting process which should normally be taken in the preparation of budgets for Glentruan Furniture Ltd. 13 Budget 13 Purpose and nature of budget 15 Purpose 15 Nature 15 3.2 Select appropriate budgeting methods for new product line and its need. 16 Incremental budget 16 Zero based budget 16 Different between zero based budgeting and incremental budget 16 Fixed budget 17 Flexible budget 17 Different between fixed and flexible budget 17 Functional budget 18 Sales budget 18 Production budget 18 Direct material usage budget 18 Direct material purchase budget 18 Direct labor budget 18 Factory overhead budget 18 Selling and administration budget 18 Cash budget 19 Master budget 19 3.3 Prepare budgets according to the chosen budgeting methods based on the given information in the scenario. 20 Sales budget 20 Production budget 22 Direct material usage budget 23 Direct material purchase budget 26 Direct labor budget 28 Factory overhead budget 30 Selling and administration budget 34 Departmental budget 35 3.4 Also prepare a cash budget. 38 Cash budget 38 Master budget 42 Budgeted profit and loss 42 Budgeted balance sheet 43 Final review 46 Budget committee 47 Working capital 47 Liquidity ratio 47 ROCE 47 4.1 Calculate variances, identify possible causes and recommend corrective action. 48 4.2 Prepare and operating statement...
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...BUDGETING Introduction and main points A comprehensive (master) budget is a formal statement of management’s expectations regarding sales, expenses, volume, and other financial transactions of the organization for the coming period. Simply put, a budget is a set of pro forma (projected or planned) financial statements. It consists of a pro forma income statement, pro forma balance sheet, and cash budget. A budget is a tool for both planning and control. At the beginning of the period, the budget is the plan or standard; at the end of the period it serves as a control device to help management measure its performance against the plan so that the future performance may be improved. International Paper, a large forest-products company, uses key budgets, including sales and expense projections, as the starting point for the developing business strategies. Prior to development of the budget, certain questions must be asked and certain assumptions must be made. What will be the inflation rate be? Where is the competition headed? Will suppliers increase prices? Will costumer tastes change? You also must explore the financial alternatives available for you. For instance, what will occur if you raise your selling price? What will be the effect if one variable (e.g., advertising) is changed? It is important to realize that with the aid of computer technology, budgeting can be used as an effective device for evaluation of “what-if”...
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.................. 2 1.1. The Basic Concepts of Budget and Budgeting ................................................................ 2 1.2. Definition of Budget ........................................................................................................ 3 1.3. Budgeting and Forecasting .............................................................................................. 4 1.4. Budgeting and Management ............................................................................................ 6 1.5. Budgeting and Planning ................................................................................................... 6 1.5.1 Purposes of Planning and Budgeting systems ................................................................. 7 1.5.2 Limitation of Budgeting................................................................................................. 10 1.5.3 Planning Cycles ............................................................................................................. 11 1.6. Budgeting process (Budget cycle) ................................................................................. 14 1.6.1 Designing the budget ..................................................................................................... 15 1.6.2 Steps in Budgeting Process- Participatory approach ..................................................... 15 1.6.3 Characteristics of a Budget ................................................
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...Outline * Introduction: How Alicorp uses budgets to enable it to meet business objective and how this company has been developed an innovative and ingenious budget technique in order to keep its financial plans. * Supporting Idea 1: Budgeting provides the financial control in Alicorp Detail 1: Planning, budgets allow to plan activities Detail 2: Budgets serve as a guide to coordinate activities * Supportive Idea 2: Alicorp develops its own budgeting politic: Master Budges Detail 1: Sales Budget helps future sales in monetary terms Detail 2: Production Budget helps to administrate manufactured things during * Supporting Idea 3: Alicorp focuses on budgeting for future plans Detail 1: Monitoring actual outcomes against planed targets Detail 2: Qualify the future cost of the whole operations * Conclusion: Budgets are useful in financial goals to meet business objectives in a planned forward-thinking way. ESSAY The importance of budgeting in Alicorp A budget is a financial plan to meet a target, which is expressed in financial terms and values that must be fulfilled within a specific period of time and under certain conditions...
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...prepare its annual master budget, including how budgeted balance sheets, cash budget and budgeted income statements affect the overall master budget. Finally it will examine potential behavioural issues that might arise within a business. When managing a company’s finance the use of planning, control and budgeting are all equally important and interconnected with one another. In effect, when a company keeping a tight rein on cash flow, fixed costs and variable costs through the use of planning and budgeting, it will consequently allow the company to better control its profit margin. When conducting research on the importance of planning and control Kay states: Control and planning are interrelated so closely that they cannot be separated from each other. Without control all the planning is fruitless because control consists of the steps taken to ensure that the performance of the organization conforms to the plans. (Kay, 2012) Kay indicates that what has been previously written about within this essay is correct; additionally it suggests that both are directly interconnected with one another. Planning can be broken up into two main sections for a business, short term planning and long term planning. Dependent upon what task the business is aiming to achieve would depend upon whether the planning would be short-term or long-term. Long term planning is often implemented from the annual budget which is produced by...
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...Captain Ashraf Mabrouk UAE – Abu Dhabi +971528002130 /+971567321913 Ashrafmabrouk13@hotmail.com / https://www.linkedin.com/pub/ashraf-mabrouk/32/a11/840 PROFILE Ability to identify opportunities, evaluate, plan and implement company and customer requirements at all levels using a variety of management and technical skills. A strategic thinker, who can create an effective team and has the ability to use individuals’ skills in the most effective way to benefit the individual, team and achieve the project goals and Objectives,. Dynamic, personable, inspiring, self-starting, progressive and talented I would add value to any organization. I have gained experience in the private and public sector for the last 24 years, Specializing in marine /port operations and shipping managements. I have demonstrated success at all levels and capable to excel at Director/VP level. I can genuinely state that continuous improvement, lessen to your customer and your employees are the key success for any organization, so use KAIZEN, LEAN, Six-Sigma or any suitable tools to enhance team engagement and motivation as well as keep the wheel running. KEY ACHIEVEMENTS Invented a new application (Port Management information System (PMIS) for ADPC with cooperation with major applications’ developer “Kongsberg IT” to automate the port operation process and invoicing, which reduce the human errors and improve data capturing and correct invoicing. It is part of the Port community system (PCS) (one window...
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...CHAPTER 6 MASTER BUDGET AND RESPONSIBILITY ACCOUNTING I. LEARNING OBJECTIVES 1. Describe what the master budget is and explain its benefits 2. Describe the advantages of budgets 3. Prepare the operating budget and its supporting schedules 4. Use computer-based financial planning models in sensitivity analysis 5. Explain kaizen budgeting and how it is used for cost management 6. Prepare an activity-based budget 7. Describe responsibility centers and responsibility accounting 8. Explain how controllability relates to responsibility accounting II. CHAPTER SYNOPSIS Chapter 6 introduces the important topic of budgets. Budgets are the primary financial planning tool used by businesses. The chapter explains how businesses use budgets and budgeting as part of the management process. The concept of responsibility centers and responsibility accounting is also discussed and related to the concept of controllability. III. CHAPTER OUTLINE Budgets represent in financial and nonfinancial terms the plans of a business for a specified period of time. Financial budgets are, in essence, financial statements that report expected or proposed future activity instead of what has already occurred. Supporting these financial budgets are nonfinancial budgets that report expected or proposed future activity in areas such as number of employees, new products developed, and number of units produced or sold. (Exhibit 6-1 illustrates...
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... Competition Bikes, Inc. Budget Process Budgets are used for forecasting future business growth and outcomes. Providing a comparison between a forecasted budget with previous year’s actual results allows leadership to strategize and plan for the company’s future on past performance. Producing a master budget roadmap for future operations may be done in two ways--by using fixed budget or flexible budgeting processes. There are advantages and disadvantages of each method of evaluation or projection of growth and it is recommended that the leadership of Competition Bikes, Inc, (CBI) consider all options presented to optimize future corporate growth. The CEO of Competition Bikes, Inc. requested a review of current budgetary information (“Year 8”) projection for the upcoming business year. Areas of analysis and management intervention have been reviewed based on data provided by CBI. Competition Bikes, Inc.’s “Year 9” budget (pro forma) has been based on financial information provided based on a current trend analysis from three previous years and focusing on “Year 8” financials. A master budget was created to plan and control revenues and costs for future growth and corporate development for “Year 9.” The benefit to CBI leadership in reviewing “Year 9” financial plans allows for decision-making on planning, coordination of operations, and benchmarking for an evaluation of actual performance at the end of “Year 9.” To review, a static budget does not change after it is...
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