Lecture Managerial accounting - Chapter 5: Planning and forecasting. After studying this chapter you will be able to understand: planning and the budgeting process, performance standards, pro-forma financial statements. | CHAPTER © jsnyderdesign / iStockphoto 5 PLANNING AND FORECASTING WHAT IS THE FUTURE FOR C&C? Cash flow has been a problem. Is $7,000 in cash enough to operate on? C&C has borrowed money to finance operations An increase in award jacket sales may be the answer to more cash C&C’s president, George Douglas, wants to decrease inventory levels, but he is concerned that customer satisfaction will be affected PLANNING AND THE BUDGETING PROCESS Unit 5 1 . Unit Unit Unit © Tomwang112 / iStockphoto Unit WHAT IS A BUDGET? An operating plan expressed in dollars Shows how resources will be committed during the coming period Helps plan for the future Communicates corporate direction and coordinates corporate efforts THE ROLES OF BUDGETING Exhibit 5-1 5 BUDGETING INFORMATION FLOWS Exhibit 5-2 6 TOP-DOWN BUDGETS: ADVANTAGES Increase probability that the organization’s strategic plans will be incorporated in planned activities Enhance coordination among divisional plans and . | CHAPTER © jsnyderdesign / iStockphoto 5 PLANNING AND FORECASTING WHAT IS THE FUTURE FOR C&C? Cash flow has been a problem. Is $7,000 in cash enough to operate on? C&C has borrowed money to finance operations An increase in award jacket sales may be the answer to more cash C&C’s president, George Douglas, wants to decrease inventory levels, but he is concerned that customer satisfaction will be affected PLANNING AND THE BUDGETING PROCESS Unit 5 1 . Unit Unit Unit © Tomwang112 / iStockphoto Unit WHAT IS A BUDGET? An operating plan expressed in dollars Shows how resources will be committed during the coming period Helps plan for the future Communicates corporate direction and coordinates corporate efforts THE ROLES OF BUDGETING Exhibit 5-1 5 BUDGETING INFORMATION FLOWS Exhibit 5-2 6 TOP-DOWN BUDGETS: ADVANTAGES Increase probability that the organization’s strategic plans will be incorporated in planned activities Enhance coordination among divisional plans and objectives Use top management’s knowledge of overall resource availability Reduce the time frame for the budgeting process TOP-DOWN BUDGETS: DISADVANTAGES May result in dissatisfaction, defensiveness, and low morale among individuals who must work under the budget Reduces the feeling of teamwork May limit the acceptance of the stated goals and objectives May create a view of the budget as a punitive device BOTTOM-UP BUDGETS: ADVANTAGES Gathers information from persons most familiar with the needs and constraints of organizational units Allow organizational units to coordinate with one another Lead to better morale and higher motivation Develop a high degree of acceptance of and commitment to organizational goals and objectives by operating management BOTTOM-UP BUDGETS: DISADVANTAGES Require significantly more time Effects of managerial participation may be negated by top-management changes Managers may be ambivalent or unqualified to participate, creating an unachievable budget May cause .
