AFM102 Lecture Notes - Operating Cash Flow, Cash Flow, Job Satisfaction

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Capacity related costs are fixed, and are based on the projected volume of
product going to be produced
The budgeting process:
- determines the planned level of most flexible costs and discretionary
spending ( which support and enhance performance potential )
- serve as a control for managers within the business units of org
- relationship between planning and control
- reflect the quantitative terms of how to allocate the financial resources
based on planned activities and short-run obejetices
Budget: is a quantitative expression of the money inflows and outflows that
reveal whether a financial plan will meet organizational objectives
- reflect how well unit managers understand org goals , and senior
managers could help fix misperceptions about the goals
- used to communicate short-term goals
- serves to coordinate many activities
- help anticipate potential problems
Budgeting: is the process of preparing budgets
Budgeting involves forecasting the demand for four types of resources over
different time periods:
1. Flexible resources that create variable costs
2. Intermediate-term capacity resources that create capacity-related
3. Resources that, in the intermediate and long run enhance the
potential of the organization’s strategy
4. Long-term capacity resources that create capacity-related costs
Master Budget
Operating budgets - summarize the level of activities such as sales,
purchasing, and production
Financial budgets - identify the expected financial consequences of the
activities summarized in the operating budgets
Operating Budgets
Sales plan - identifies the planned level of sales for each product
Capital spending plan - specifies the long-term capital investments that
must be paid in the current budget period to meet activity objectives
Production plan - schedules all required production
Materials purchasing plan - schedules all required purchasing activities
Monthly Production Capacity are determined by
1- Short term Flexible resources
2- Intermediate term capacity resources
3- Long term capacity resources (committed)
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