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Chapter 10

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Greg Clark

BU247 Chapter 10 – Using Budgets for Planning and Coordination Week 9 The Budgeting Process The Role of Budgets and Budgeting -Budgets are a central part of the design and operation of management accounting systems -A budget is a quantitative expression of the planned money inflows and outflows that reveals whether the current operating or business plan will meet the organization’s financial objectives -Budgeting is the process of preparing budgets -Budgeting also serves to coordinate the many activities of an organization -A budget helps to anticipate potential problems and can serve as a tool to help provide solutions to these problems The Elements of Budgeting 1. Flexible resources that create variable costs – Ex. Lumber, glue, varnish 2. Intermediate-term capacity resources that create fixed costs – Ex. Forecasting the need for rental storage space that might be contracted on a quarterly, semi-annual, or annual basis 3. Resources that, in the intermediate run and long run, enhance the potential of the organization’s strategy – Discretionary expenditures such as advertising and promotions 4. Long-term capacity resources that create fixed costs – Ex. A new fabrication facility for a computer chip manufacturer, which might take several years to plan and build and might be used for 10 years -Two major types of budgets make up the master budget:
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