MGAB03H3 Chapter Notes - Chapter 10: Financial Statement, Financial Institution, Variable Cost
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MGTB03 Chapter 10 Notes
-A budget is a formalized financial plan for operations of an organization for a specified future
-It helps the organization coordinate the activities needed to carry out the plan.
-it reflects management's forecast of the financial effects of an organization's plans for one or more
future time periods
-It also provides a mechanism for defining the responsibilities and financial decision-making
authority, or decision rights, of individual managers
-A budget cycle is a series of steps that organizations follow to develop and use budgets
-Managers typically begin the process by revisiting and possibly revising the organizational vision
and core competenciesreconsider long-term strategies in light of the vision and core
competenciesthe current period's operating plans are developed…
-A master budget is a comprehensive plan for an upcoming financial period, usually a year
-It reflects an organization's future operating and financing decisions and are often summarized in a
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set of budgeted financial statements
-These statements are forecasts of the future income statement, balance sheet, and cash flows,
given an organization's sales forecasts and expenditure plans for the next period
-Master Budget=Operating Budget+Financial Budget
*The development of a master budget in a manufacturing organization
-Operating Budget: management's plan for revenues, production, and operating costs
-Financial Budget: management's plans for capital expenditures, long-term financing, and cash flows,
leading to a budgeted balance sheet and budgeted statement of cash flows
-The cash budget is part of the financial budgets
-A cash budget reflects the effects of management's plans on cash and summarizes the information
that accountants gather about the expected amounts and timing of cash receipts and
- The capital budget reflects long-term investment.
*Developing a Master Budget
-The master budget is developed using a set of budget assumptions, which are plans and
predictions about next period's operating activities
-Revenues are budgeted assuming a particular forecast of sales volumes and prices or assuming an
estimated percentage change from the prior year.
-Individual costs are budgeted assuming a fixed amount to be spent, as a percentage of revenues, as
a percentage change from the prior year, or on some other basis
-The process of developing a master budget becomes increasingly complex as organizations become
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