Purchase Solution

Budgets and Policies

Not what you're looking for?

Ask Custom Question

Budgets are plans of action based on forecasted transactions, activities, and events that are synonymous with managing an organization. They are essential to accomplishing the goals articulated in an organization's strategic plan and are used to communicate information, coordinate activities and resource usage, motivate employees, and evaluate performance. The budgeting process provides the opportunity to match organizational goals with the resources necessary to accomplish those goals.

Budget policy development involves several distinct steps. This policy starts with an understanding of needs and issues, describes explicit policies governing the development and management of financial resources, identifies broad goals, sets objectives with which to apply available funding, and concludes with specific funding proposals. In assessing issues and needs, this policy builds on actions taken in previous budgets, thereby providing continuity with previous programs.

Based on the case (Hector Corporation) below please help formulate a respond to the following:

1. Comment in thorough detail on the Hector Corporation's policy.
2. In thorough detail, what changes should or could be recommended to the policy?

Policies for Budget Development:

Case 1: Hector Corporation is a manufacturing company with annual sales of $25 million. Its budget committee has created the following policy that the company uses each year in developing its master budget for the following calendar year:

May: The Company's controller and other members of the budget committee meet to discuss plans and objectives for next year. The controller conveys all relevant information from this meeting to division managers and department heads.

June: Division managers, department heads, and the controller meet to discuss the corporate plans and objectives for next year. They develop a timetable for developing next year's budget data.

July: Division managers and department heads develop budget data. The vice president of sales provides them with final sales estimates, and they complete monthly sales estimates for each product line.

August: Estimates of next year's monthly production activity and inventory levels are completed. Division managers and department heads communicate these estimates to the controller, who distributes them to other operating areas.

September: All operating areas submit their revised budget data. The controller integrates their labor requirements, direct materials requirements, unit cost estimates, cash requirements, and profit estimates into a preliminary master budget.

October: The budget committee meets to discuss the preliminary master budget and to make any necessary corrections, additions, or deletions. The controller incorporates all authorized changes into a final draft of the master budget.

November: The controller submits the final draft to the budget committee for approval. If the committee approves it, it is distributed to all corporate officers, division managers, and department heads.

Purchase this Solution
Solution Summary

The write up gives a learned discussion on Budgets and Policies

Solution Preview

1. Hector Corporation policy has several weaknesses. First, the company's controller and other members of the budget committee meet to discuss plans and objectives for next year. The problem is that those objectives are very difficult to set without sales forecasts and inputs from production. Second, if the divisional managers and department heads develop budget data and use estimates given by the VP sales in July, then these estimates are likely to be inaccurate. Sales estimates change with changes in the economy, competitor activity, and changes in technology. Using July estimates can make Hector Corporation's budgeting inflexible. Based on July sales estimates, Hector Corporation develops a production plan and inventory levels. From the perspective of production, such a plan is very convenient but this budget does not give Hector Corporation any space to effectively respond to changes in the market and business environment. During September the operating areas submit their ...

Purchase this Solution
Free BrainMass Quizzes
Situational Leadership

This quiz will help you better understand Situational Leadership and its theories.

SWOT

This quiz will test your understanding of the SWOT analysis, including terms, concepts, uses, advantages, and process.

Lean your Process

This quiz will help you understand the basic concepts of Lean.

Accounting: Statement of Cash flows

This quiz tests your knowledge of the components of the statements of cash flows and the methods used to determine cash flows.

Business Processes

This quiz is intended to help business students better understand business processes, including those related to manufacturing and marketing. The questions focus on terms used to describe business processes and marketing activities.

View More Free Quizzes
Related BrainMass Solutions

  • How info presented in budgets differs from financials

    Notes are used to describe accounting policies, major business events, pending lawsuits, and other facets of operation. The solution discusses how information presented in budgets differs from financials.

  • Two ways business be socially responsible

    Examples include: sales volume monitored, customer service complaints monitored, monitoring inventory levels, keeping track of overtime expenses, and monitoring expenses and budgets. 2. What two ways will your business be socially responsible?

  • Public Budgeting and Government Policies

    In this response, we will discuss the effects of current government policies on the state's budget, as these budgets are very sensitive to government policies. We will also discuss the positive and negative impacts of these policies on the budget.

  • Ffederal, State, and Local Policymakers

    Recently, state educational budgets have been challenged from rising costs elsewhere in public budgets. Indeed, states and local communities across the U.S. are looking for ways to strengthen their education and training systems.

  • Budgeting methods analyzed

    (1) dissemination of guidelines stating the overall plans and policies and other assumptions and constraints that are to be observed in the preparation of budget estimates; (2) preparation of the sales budget; (3) preparation of other estimates

  • "Real-World" Best Practices for Which a Budget Analyst Should Strive.

    that are consistent with goals, policies, and plans.

  • Financial understanding of their organization

    Such reports would be used to decide the pricing, costing, operational initiatives, marketing budgets, human resources policies etc. These reports will give the commercial implications of the decisions.

  • Coca-Cola Control Mechanisms: Bureaucratic and Market Controls

    Bureaucratic control is the use of rules, regulations, and formal authority to guide performance. It includes such items as budgets, statistical reports, and performance appraisals to regulate behavior and results.

  • Example Job Description of Administrative Accountant

    Position allocate to this class exercise independent judgment in formulating or assisting in the formulation of policies and procedures which have significant impact in preparation and administration of budgets. 35% 15% 15%

View More Related Solutions