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sales, purchases, operating expenses, capital, and cash budgets

JetSet Machinations New York heads the production of the jet lag prevention tablet, SmoothJet, which is effective in 98% of the adult population, and it carries a fully refundable guarantee. Key ingredients of the tablet include kava kava, which is obtained from Hawaii, melatonin, and a mild natural stimulant processed and imported from France. The combination of these ingredients allows the body clock to adjust smoothly to time change. Freshness is essential to the effectiveness of the product, and its shelf storage life is limited to 2 months after manufacturing.

In JMI, each travel product or production has its own product budget. This budget includes all that is entailed in producing the product, including fixed and variable expenses for production activities such as those related to employees, facilities, deliveries, equipment, and leases.

Describe some items that you would expect to find on each of the individual budgets for this specific SmoothJet product. This would include sales, purchases, operating expenses, capital, and cash budgets. Include considerations for the variable aspects of this product and its sales.

Solution Preview

Master Budget
Budgeting is one of the tools of the management control. Internal control programs are critical to any organization, because without it the results could be chaotic.
Features of Budgeting
The "master" budget is an essential part of the coordinating effort. Such budgets consist of many individual building blocks that are tied together in logical harmony, and reflect the financial plan for the entire organization. Careful articulation is essential.
The starting point for the master budget is an assessment of anticipated sales via the sales budget. The expected sales level drives both the production plans and the selling, general, and administrative budget. Production drives the need for materials and labor. Factory overhead may be applied based on labor, but it is ultimately driven by overall production.

The major features are:
? Will help maximize efficiency and minimize waste.
? To facilitate management and control.
? Effectiveness and efficiency of operations include the use of the entity's resources.

? Help in strategy implementation

Budgeting Process

A 'bottom-up' approach, in summary, starts with the detail of expected or desired sales and costs and accumulates the budget from the detail. A 'top-down' approach starts with senior management's expectations, goals, statistics, or needs in setting an overall, high level budget. The 'top-down' budget is then broken down into detail for company operating units.)

This 'bottom-up' approach naturally has significant input and influence from senior management, in that, goals, targets, and standards are applied in the preparation of the detail budgets. Steps:
1. Laying down the goals
The first step is to formulate the goals. It also involves revision of past goals.
2. Sales Department submits budget
After the goals have been analyzed and approved, the sales department submits a budget based on historical demand, current situation and future changes.
3. Reviews with Top Management
Top management makes a review and see that the budget is tied to overall organizational goals.
4. Changes discussed with departments?budget communicated again.
Changes that the top management feels are necessary to the sales budget are discussed with sales head. Sometimes amounts can be compromised, shifted to other areas, or planned for another year.

5. Budget communicated to departments
The approved budget amounts are communicated through reports to each department?the official department budgets for the year.

6. Budget tracked by department?accountability instituted.
The sales head can submit monthly updates of the actual performance and with the variation.
Thus Planning, participation, and two-way communication have been key success factors in our budgeting process.

The advantages of budgeting are:

Master Budget can provide the basis for detailed sales targets, staffing plans, inventory production, cash investment/borrowing, capital expenditures (for plant assets, etc.), and on and on. Budgets provide benchmarks against which to compare actual results and develop corrective measures. ...

Solution Summary

The "master" budget is outlined.

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