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    Chapter 10 Forecasting

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    Elizabeth
    This document discusses short-term financial forecasting and budgeting. It begins by defining financial forecasting as making projections of sales, income, and assets based on alternative strategies. Budgeting is preparing a plan for projected expenditures to meet financial goals. A production budget presents the required investments in materials, labor, and plant to support forecasted sales. The document then lists the purposes of budgets and their advantages and limitations. It concludes by outlining the major components of a master budget, including operating budgets for income, cost of sales, expenses, and finances, as well as capital investment budgets.

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    Chapter 10 Forecasting

    Uploaded by

    Elizabeth
    35 views2 pages
    This document discusses short-term financial forecasting and budgeting. It begins by defining financial forecasting as making projections of sales, income, and assets based on alternative strategies. Budgeting is preparing a plan for projected expenditures to meet financial goals. A production budget presents the required investments in materials, labor, and plant to support forecasted sales. The document then lists the purposes of budgets and their advantages and limitations. It concludes by outlining the major components of a master budget, including operating budgets for income, cost of sales, expenses, and finances, as well as capital investment budgets.

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    CHAPTER 10 FORECASTING

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    This document discusses short-term financial forecasting and budgeting. It begins by defining financial forecasting as making projections of sales, income, and assets based on alternative strategies. Budgeting is preparing a plan for projected expenditures to meet financial goals. A production budget presents the required investments in materials, labor, and plant to support forecasted sales. The document then lists the purposes of budgets and their advantages and limitations. It concludes by outlining the major components of a master budget, including operating budgets for income, cost of sales, expenses, and finances, as well as capital investment budgets.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    35 views2 pages

    Chapter 10 Forecasting

    Uploaded by

    Elizabeth
    This document discusses short-term financial forecasting and budgeting. It begins by defining financial forecasting as making projections of sales, income, and assets based on alternative strategies. Budgeting is preparing a plan for projected expenditures to meet financial goals. A production budget presents the required investments in materials, labor, and plant to support forecasted sales. The document then lists the purposes of budgets and their advantages and limitations. It concludes by outlining the major components of a master budget, including operating budgets for income, cost of sales, expenses, and finances, as well as capital investment budgets.

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    CHAPTER 10 FORECASTING SHORT-TERM OPERATING FINANCIAL REQUIREMENTS

    FINANCIAL PLANNING FINANCIAL CONTROL


    making projections of sales, income, and assets based on implementation phase dealing with the feedback and
    alternative production and marketing strategies adjustment process that (a) to ensure that plans are
    deciding how to meet the forecasted financial requirements followed and, (b) to modify existing plans in response to
    changes in the operating environment
    Financial forecasting analysis begins with projections of sales revenues and production costs.
    Budgeting is the act of preparing budget. Budget is a plan which sets forth the projected expenditures
    needed to carry out tasks and meet financial goals. The use of budgets to control a firm’s activities is
    known as budgetary control.
    Production budget presents a detailed analysis of the required investments in materials, labor, and
    plant necessary to support the forecasted sales level.

    PURPOSES OF THE BUDGET


    1. Defining broad objectives and goals and formulating strategies to achieve such objectives;
    2. Coordinating the activities of the organization by integrating the plans of the various parts
    thereby pulling everyone in the same direction;
    3. Allocating resources to those parts of the organization where they can be used most effectively;
    4. Communicating management's approved plans throughout the organization;
    5. Uncovering and preparing for potential bottleneck in the operations before they occur;
    6. Motivating managers to achieve the desired results; and
    7. Setting a standard or benchmark for evaluating actual performance.
    ADVANTAGES LIMITATIONS
    forces planning and exposes situations in which plans of do not reflect qualitative variables
    subcomponents are inadequate
    allows a reiterative process to bring the goals of the difficult to prepare a detailed budget for an organization
    organization and the subcomponents into agreement that has never existed or for a new division, product, or
    department of an existing firm
    lack of higher and lower management commitment
    provides a means of communicating organization goals because of lack of understanding of the fundamentals of
    budget preparation and utilization

    provides a basis for financial planning, sub-unit


    coordination, resource acquisition, inventory policy, only a representation of future plans or a means to the goal
    scheduling and output distribution of profitable activity and not an end in itself

    provides a basis by which activity can be monitored usually emphasize results, not reasons

    MAJOR COMPOSITION OF THE MASTER BUDGET


    A. The Operating Budget
    1. Budgeted Income Statement
    a. Sales budget. It is the foundation on which all other short-term budgets are built. It
    provides revenue predictions using past data or, if none, through conduct of survey.
    b. Production budget. It is the key factor in determining the following budget which in turn
    are needed to assist in formulating a cash budget:
     Materials cost budget
     Direct labor cost budget
     Factory overhead budget
     Inventory levels
    2. Cost of Sales budget
    3. Selling and Administrative expenses budget
    4. Financial expense budget
    B. The Financial Budget
    1. Cash budget. It is composed of cash receipts and disbursements.
    2. Budgeted Statement of Financial Position. It is developed by beginning with the
    current statement of financial position and adjusting it for the data contained in
    the other budgets.
    3. Budgeted Statement of Sources and Uses of Funds. It shows the net income
    expected during the budget period.
    C. The Capital Investment Budget

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