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MGT223H5 (24)
Minlei Ye (21)

Chapter 9- Budgeting.docx

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Minlei Ye

MGT223 - Chapter 9: Budgeting Budgeting: detailed plan for acquiring and using financial &other resources for future periods Planning: developing/preparing objectives and strategies to reach goal Control: Ensure that goals are reached (Management) Advantages of Budgeting: - Define goals& objectives - Plan for the future - Allocating resources - Uncover potential bottlenecks - Communicating/ coordinating plans Self-Imposed Budget: prepared with full co-operating of managers from all levels (Low to high) Advantages of Self imposed budgets - All managers are viewed as members/respected by top management - Budget estimates are more accurate from bottom managers than top - Higher motivation when able to participating in setting the budget - Will not have the excuse that the budget is unrealistic Zero Based Budgeting: requires manager to justify all expenses, not just changes from the prior years Con of ZBB: - Time consuming - Costly Example: Granny Cookies. Prepare the quarter end of June 30, SALES budge April May June Quarter Budgeted sales in units 2,000 5,000 3,000 10,000 Price 10 10 10 10 Total budgeted sales 20,000 50,000 30,000 100,000 Sales Budget: - April $20,000 - May $50,000 - June $30,000 Expected Cash Collection Question: .All sales on account. The March 31 accounts receivable balance of $3,000 will be collected in full in April. What is the total cash collection in this quarter? Granny’s collection pattern in this quarter is: - 70% collected in the month of sale, - 25% collected in the month following sale, - 5% uncollectible. ANS: Expected Cash collection in April 20,000*70% + 30,000 = $17,000 Expected Cash collection in May 50,000* 70% + 20,000* 25%= $40,000 Expected Cash collection in June 50,000*25% + 30,000* 70% = $33,500 Total cash collection on the quarter: $17,000+ $40,000 + $33,500= 9$0,500 Example: Parlee Company's sales are 30% in cash and 70% on credit. Sixty percent of the credit sales are collected in the month of sale, 25% in the month following sale, and 12% in the second
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