BUDGETING FOR OPERATION Budget and Budgeting Budget  quantitative model of the expected consequences of the organization’s short term operating activities. Budgeting  process of preparing budget and requires several important skills, including forecasting, a knowledge of how activities affect costs, and the ability to see how the organization’s different activities fit together. Purpose of budget and budgeting are for planning and control. Planning and control and the role of budgets

Exp. Objectives: a. Achieve an ROI of 10 % during 2009 – 2014 b. Become number one in global automotive market share by 2011 c. Increase domestic cars and trucks market share by 5 % by 2012 d. Reduce unit costs by 6 % in 2011 Strategy: Grow by concentrating all resources in the car and truck industry. Focus on developing fuel-efficient cars and trucks Vertically integrate and continually modernize manufacturing facilities with state of the art technology to reduce costs and to control raw materials Engage in joint ventures with foreign auto manufacturers to build and sell cars and trucks in developing countries. Budgets: Prepare budgets showing cost benefit analysis of each plan Develop procedures needed to sell enough bonds and common stocks to finance the construction of the world car division Develop procedures for negotiation teams to follow when looking joint venture partners Develop a series of procedures to follow in order to purchase a steel company Develop procedures to convert manned to robot work station Develop procedures to convert to front wheel drive

B. The Production Plan Planner must match sales plan with inventory policy and capacity levels to determine a production plan. Some organizations use some policies ; Producing for inventory and attempt to keep predetermined or target number of units in inventory. Just in time inventory policy  “A Chase Demand Strategy” is the inventory policy of producing for demand. Implementing this policy requires flexibility among employees, equipment and suppliers and well designed production process. Demand drives the production plan directly: the production in each period equals the next period’s planned sales. C. Developing the Spending Plans Having identified a feasibile production plan, planners can make tentative resources commitments. The Purchasing group prepares a materials purchasing plan The personnel and production groups prepare the labor hiring and training plans Staff and other groups prepare an administrative and discretionary spending plan for R & D, advertising, and training. Discretionary expenditures (fixed costs) provide infrastructure required by the emerging production and sales plan. The long term plan includes top management approves the capital spending plan for putting new productive capacity in place

Format of FinnacingSection of Cash Flow Statement  Net cash flow from operations  Opening cash  Cash invested (withdrawn)  Cash available  Opening loan  Borrowing made  Borrowing repaid  Ending Loan  Ending cash $ 848 $ 5, , ,152 1,652 19, ,803 5,000