AFM102 Chapter Notes - Chapter 9: Budget, Income Statement, Cost Driver

• School: University of Waterloo
• Department: Accounting & Financial Management
• Course: AFM102
• Professor: Jie Joyce Tian

Document Summary

Budgets are useful for: communicate financial objectives for the coming year(s, allocate resources, coordinate activities across different functional areas within an org, periodically compare actual performance of revenues, expenses and profits to the plan. Highly challenging, require management to stretch to meet: stretch budget: a budget that is highly difficult to achieve. Issue: frequency of zero-based review; too time consuming and costly to justify on an annual basis, becoming mechanical. Insufficient inventory: lost sales or last-minute high-cost production efforts: excessive inventories tie up working capital and create storage problems. Static budget: a budget designed for only one planned level of activity. Inadequate for control purposes if actual level of activity during a period differ sig from budgeted level. Flexible budget: a budget that provides estimates of what revenues and costs should be for any level of activity within a specified range.