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Questions and Answers
What is the primary objective of activities undertaken to acquire capacity for the intermediate-/long-term?
What is the purpose of the Purchasing Group in the budget preparation process?
What happens when an organization is contracting, according to the Personnel and Production Group?
What is the characteristic of discretionary expenditures made by Senior Managers?
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What is the purpose of Step 11 in the budget preparation process?
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Which group is responsible for making plans to discharge employees when an organization is contracting?
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What is the main focus of the Senior Managers in the budget preparation process?
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What is the purpose of the Personnel and Production Group in the budget preparation process?
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What is the primary focus of Step 12 in the budget preparation process?
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What is the ultimate goal of the activities undertaken to acquire capacity for the intermediate-/long-term?
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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.
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Description
This quiz covers the importance of sales plans in determining labor, materials, production capacity, and financials. It also explores the inventory policy and its implications on production plans, including 'push' and 'pull' principles.
