Sales Plan and Inventory Policy in Management Accounting

Questions and Answers

What is the primary objective of activities undertaken to acquire capacity for the intermediate-/long-term?

To improve customer satisfaction

What is the purpose of the Purchasing Group in the budget preparation process?

To plan to acquire the required raw materials and supplies

What happens when an organization is contracting, according to the Personnel and Production Group?

It will use retraining plans to redeploy employees to other parts of the organization

What is the characteristic of discretionary expenditures made by Senior Managers?

They are unaffected by product volume and mix Signup and view all the answers

What is the purpose of Step 11 in the budget preparation process?

To assess cash inflow and outflow Signup and view all the answers

Which group is responsible for making plans to discharge employees when an organization is contracting?

Personnel and Production Group Signup and view all the answers

What is the main focus of the Senior Managers in the budget preparation process?

Making discretionary expenditures Signup and view all the answers

What is the purpose of the Personnel and Production Group in the budget preparation process?

To plan labor hiring and training, and to develop plans to discharge employees when an organization is contracting Signup and view all the answers

What is the primary focus of Step 12 in the budget preparation process?

Not specified in the content Signup and view all the answers

What is the ultimate goal of the activities undertaken to acquire capacity for the intermediate-/long-term?

To improve customer satisfaction Signup and view all the answers

Study Notes

Sales Plan

Sales plans determine labor, materials, production capacity, and financials for each key line of goods/services.

Inventory Policy

Inventory policy can be based on 'push' or 'pull' principles, shaping the production plan.
'Pull' principle:
- Produce only at order
- Flexible
- No inventory
- Moving toward just-in-time (JIT) by shortening interim periods
'Push' principle:
- Use resources efficiently all the time
- Reflects a lack of flexibility
- Build up inventory
- Specialized employees and equipment

Production Plan

Production plan is determined by matching sales plan with inventory policy and capacity level.
Capacity is the lesser of:
- Long-term capacity
- Intermediate-term capacity
- Short-term capacity
Production is the lesser of:
- Total demand
- Production capacity
Selection of orders by highest contribution margin per customer.

Capital Spending Plan and Productive Capacity Plan

If production plan is infeasible, planners must:
- Reduce planned production level
- Adjust capacity
Adjusting capacity:
- Flexible resources ready for short-term
- Capacity resources to be acquired intermediate-/long-term
Minimize waste of capacity by reviewing activities:
- Value-adding?
- Restructuring possible

Budgeting

Budget: a quantitative expression of money inflows and outflows to meet financial objectives.
Budgeting: the process of preparing budgets, involving forecasting demand for four types of resources.
Goals of budgeting by usage type:
- Diagnostic use: planning, resource allocation, coordination, and performance assessment.
- Interactive use: communication of goals, fostering understanding, and anticipating potential problems.

Budgeting Process

Step 1: Define organizational goals.
Step 2: Create sales forecast and production plan.
Step 3 and 6: Capital spending plan and productive capacity plan.
Step 4: Create inventory policy.
Step 5: Determine production plan.
Step 7-9: Material, labor, and spending plans.
Step 11: Cash flow planning.
Step 12: Finalize the master budget.