BAB 2024 CH09 Budgetary Planning PDF Budget Inventory
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It also indicates how many units companies should sell to break even. All these factors enable a company to set its target profit and adjust its expenses to reach the target through profit planning. It involves setting a target profit level for a specific budgeting period, which can be quarterly, half-yearly, or annually.
- If any deviations from the target are identified, the responsible executives must make appropriate corrections and bring the business operations on the right track.
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- That constitutes a plan of action for a specified time period.
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Step #2: Plan how to achieve the target
The master budget comprises individual budgets like production, selling and administrative, sales, and cash. Participative budgeting involving managers of all levels can improve accuracy and fairness. Chapter 7 discusses profit planning, emphasizing the importance of budgeting in setting objectives and controlling resources to achieve them. It covers various budgeting aspects, including responsibility accounting, budget periods, and the roles of management in the budgeting process. Additionally, it presents examples of sales, production, and direct materials budgets, along with expected cash collections and disbursements. This document discusses break-even point (BEP) and cost-volume-profit (CVP) analysis.
Nevertheless, the difference is that budgeting does not stress the steps to achieve, the responsibilities of organizational units, approved systems of control, etc. Profit planning refers to setting up a profitability goal for a particular budgeting period and the steps undertaken by a business to achieve it. It is an essential process of running a company, as businesses are all about profits, and firms follow many measures to attain desired profitability levels.
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The document discusses budgeting, including the benefits of budgeting, essentials of effective budgeting, and the components of the master budget. Budgeting is a formal written plan for a future time period that promotes efficiency and control. Effective budgeting requires research, management acceptance, and a clear organizational structure.
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The master budget includes operating budgets for sales, production, and expenses and financial budgets for cash and capital expenditures. 1) The document provides production budgets and sales projections for several companies over multiple quarters or months. It includes data on units produced and sold, inventory levels, direct materials and labor requirements.
Ch09 Break-Even Point and Cost-Volume Profit Analysis
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Budgeting and profit planning are closely interlinked with the latter being a significant component of the former. 1) ch09 profit planning The document discusses break-even point and cost-volume-profit analysis, including calculating the break-even point using formulas, graphs, and income statements. This chapter discusses profit planning, activity-based budgeting, and e-budgeting. Budgets are generally used to evaluate performance, create plans of action, assist in control of profit and operations, and facilitate communication and coordination of activities. Therefore, planning revenue and expenditure leads to planning business profits.