1-- Budget Concepts: A- Management Functions: 1. Planning : Set a Goal- How to Achieve 2. Organizing: Departments, Responsibilities, Authorities 3. Leading :( Directing ) 4. Monitoring: ( Controlling) Corrective Actions B- Planning Steps: Overall Planning Process 1. Mission Statement--> Reason of Existence 2. Long Term Goals --> Strategic Budget 3. Short-Term Goals --> Master Budget = Annual Profit Plan Master Budget Consists of: a. Operational Budget b. Financial Budget C- Reasons ( Benefits ) from Preparing Budget: 1. Planning 2. Communication & Co-ordination 3. Monitoring ( Control) 4. Evaluation & Motivation D- Control System Steps: 1. Planning ---> Budget 2. Measure Actual --- > Cost 3. Difference --- > Performance 4. Corrective Actions --- > Internal Control E- Budget Weakness: 1. Doesnt Ensure Profit 2. Doesnt Ensure Cost Reduction- Efficiency F- Factors Affect Budget Preparation: 1. Internal Factors: Under Management Control/ Authority Change of Production Line, Add new products, Hire new management/employers, ... 2. External Factors: Out of Management Control a. General Economy b. Industry Situation G- Characteristics of Successful Budget: 1. Sufficient Lead Time 2. Manual -- > How to use a. Schedule of activity b. Distribution List 3. Buy-In 4. Support of Top Management H- Who Prepare Budget : 1. Top-Down Approach -- Less Time ------- Bad Motivation for employees 2. Bottom-Up Approach-- Motivation ------- More Time ( Cost) 3. Participation -- Motivation ------- More Time+ Budgetary Slack ( Padding ) I- Budget Director Authority: Staff Authority Not Line Authority J- Standards Types 1- Who Prepare it a. Authoritative b. Participative 2- How To Prepare a. Theoretical b. Practical 2-- Forecasting Techniques A- Qualitative Methods 1. Jury of opinion 2. Delphi 3. Surveys B- Quantitative Methods: 1. Time Series Analysis - Components 1.. Seasonal 2.. Cyclical 3.. Secular- Trend 4.. Irregular- Random Variable - Techniques 1.. Simple moving Average 2.. Weighted moving Average 3.. Exponential Smoothing Ft = alpha At + ( 1- alpha ) Ft Forecast y = alpha Actual current month + ( 1-alpha ) Forecast current month alpha = between 0 and 1 x = independent Factor- Time y = dependent Factor - variable like sales 2. Trend Analysis 1.. High Low Method Change $ Variable per unit= ___________ = $ Change Hours Total Cost = Fixed Cost + ( Variable per unit X No. of Hours ) Fixed Cost = Totals Cost - ( Variable per unit X No. of Hours ) 2.. Regression Analysis - Simple Regression y = a + ( b * X ) Dependent = y intercept + ( Slope * Independent Variable ) Dependent = Fixed part +( V per unit * Cost Driver ) Total Cost = Fixed Cost + (V per unit * Qty ) --- Co-efficient Correlation: r=+- 1 Measure of the relative relationship between 2 variables r Value : the strength of relationship +1 very strong & Positive r + or -: the trend of relationship -1 very strong & inverse --- Co-efficient of Determination r2 How good the fit between 2 variables Measure by % of total variance that can be explained by the regression Equation --- T Analysis validation of r 3. Experience Curve - Learning Curve 1.. Cumulative Average a.No. of Batches b.Cumulative Avg per unit = b1*Learning Curve % c.Cumulative Avg Total = a * b d. Time Spent on most recent units = c2-c1 2.. Incremental unit per time e. incremental total = b1+b2 f. Time spent on most recent units = e/a Benefits of Experience Curve 1. Pricing 2. Value Chain Analysis 3. Quality 4. Expected Value 5. Sensitivity analysis 2--Methodologies 3--Preparation
Posted on: Wed, 16 Oct 2013 06:57:10 +0000
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