THE MASTER BUDGET (FROM PPT) ⦁Communicate objectives, constraints, and expectations ⦁For a specific period of time

MANAGEMENT AND PLANNING ⦁Provide financial predictions ⦁Static—based on a single level of output demand
⦁Planning is the cornerstone of effective management. ⦁Provide nonfinancial performance goals and objectives ⦁Interactive—departments generate and consume
⦁Budgeting—Formalizes plans and translates qualitative ⦁Identify potential difficulties information
narratives into a documented, quantitative format ⦁Determine resource allocation and constraints
⦁Budget—Expresses a commitment to planned activities ⦁Permit control through budget-to-actual comparisons
and resource acquisition and use BUDGETING
⦁Short term
⦁Top, middle, and operational management involvement
⦁Usable guidelines to implement strategic and tactical
plans
⦁Allocates resources
⦁Standard against which performance can be measured

SALES BUDGET
⦁Sales forecast
STRATEGIC PLANNING ⦁Ask sales personnel
⦁Long term (5 to 10 years) ⦁Extrapolate past trends
⦁Top-level management ⦁Use market research
⦁Long-range goals, strategies, and policies ⦁Employ statistical models and simulation
⦁Foundation for short-term planning
⦁Identify and gather information on key variables, both
internal and external
⦁Effective strategic planning requires that managers build
plans and budgets that integrate external considerations THE CONTROL PHASE OPERATING BUDGET
and influences with internal factors ⦁Actual-to-budget comparisons
⦁Access to resources ⦁Determining and investigating variances
⦁Core competencies ⦁Corrective action
⦁Product development ⦁Feedback to operating managers
⦁Product life cycles
EXTERNAL KEY VARIABLES
⦁Competitor actions
⦁Local and global market conditions
PRODUCTION BUDGET
⦁Political/regulatory climates
⦁Production manager combines
⦁Current and emerging technology issues
⦁Sales estimates
⦁Outsourcing opportunities
⦁Beginning inventory targets
⦁Consumer trends and attitudes
⦁Ending inventory targets
⦁Demographics
⦁Determines the types, quantities, and timing of products
⦁Foreign currency exchange rates
to be manufactured
⦁Business risk factors
ENDING INVENTORY POLICY
TACTICAL PLANS
⦁Percentage of next period’s projected sales
⦁Short term (1 to 18 months)
⦁Constant amount
⦁Top and middle management THE MASTER BUDGET
⦁Buildup of inventory for high-demand periods
⦁Specific objectives and means to achieve strategic plans ⦁A comprehensive set of budgets, budgetary schedules,
⦁Near zero in just-in-time systems
⦁Basis against which results can be measured and pro forma organizational financial statements
BUDGETS
⦁Cost of holding inventory includes storage, insurance, ⦁Show total costs for operating budgets ⦁Highlights importance of cash for organization’s
obsolescence, shrinkage, damage ⦁Show costs without depreciation for cash budgets continued existence
⦁Translates accrual-based information into cash flows
⦁Indicates effectiveness of credit practices
⦁Allows for planned cash borrowing or investing
⦁Used to prepare pro forma Cash Flow Statement

DIRECT LABOR BUDGET

⦁Total number of people
⦁Specific types of workers
⦁Production hours needed
⦁Costs
⦁Union contracts
⦁Minimum wage laws
⦁Fringe benefit costs SELLING AND ADMINISTRATIVE BUDGET
⦁Payroll taxes

CASH COLLECTIONS/DISBURSEMENTS
⦁Collections
⦁Sales
⦁Cash
⦁Accounts Receivable
⦁Disbursements
THE FINANCIAL BUDGET
⦁Purchases
⦁Cash
⦁Accounts Payable
CASH COLLECTIONS/DISBURSEMENTS

OVERHEAD BUDGET
⦁Identify activity base
⦁Estimate overhead costs
⦁Separate costs as fixed or variable CASH BUDGET
HOW TO IMPROVE CASH FLOW BUDGETING TERMS
⦁Establish sound credit practices ⦁Continuous budgeting
⦁Expedite fulfillment and shipping ⦁ 12-month rolling budget
⦁Bill promptly and accurately ⦁Budget slack
⦁Offer discounts for prompt payments ⦁ Intentional underestimation of revenue
⦁Aggressively follow up on past due accounts ⦁ Intentional overestimation of expenses
⦁Deposit payments promptly ⦁Participatory budget
⦁Seek better payment terms from suppliers/banks ⦁ Developed by top management and operating
⦁Keep tight control of inventory personnel
⦁Review and reduce expenses ⦁Imposed budgets
⦁Pay bills on time but never before they are due ⦁ Developed by top management
THE FINANCIAL BUDGET ⦁ Imposed on operating personnel
BUDGET MANUAL (APPENDIX)
⦁Statements of budgetary purpose and its desired results
⦁Listing of specific budgetary activities to be performed
⦁Calendar of scheduled budgetary activities
⦁Sample of budgetary forms
⦁Original, revised, and approved budgets
POTENTIAL ETHICAL ISSUES
⦁Using a single budget system globally that may conflict
CAPITAL BUDGET with national cultures
⦁Long-term fixed asset needs ⦁Permitting budget slack
⦁Plant ⦁Distorting budgeting process by treating short-term
⦁Equipment conditions as long-term conditions
⦁Payment points ⦁Using fraudulent accounting techniques to meet budget
THE FINANCIAL BUDGET goals
⦁Ignoring employee input in budgeting
⦁Justifying management decisions by using “backwards
budgeting”
⦁Disregarding contingencies in budgeting
⦁Ignoring external performance measures and
benchmarks
⦁Failure to communicate “big picture” assumptions to all
managers participating in the budget process
⦁Promoting “spend-it-or-lose-it” attitudes to punish cost
savings and reward spending
BUDGETS PROVIDE ⦁Mandating “across-the-board” budget cuts without
⦁Guide to align activities and resources with considering alternative cost reductions
organizational goals
⦁Vehicle to promote employee participation, cooperation,
and departmental coordination
⦁Tool to enhance planning, controlling, problem solving,
and evaluating
⦁Basis to sharpen responsiveness to internal and external
factors
⦁Model to view future performance and consider
alternative measures