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Chapter 10

Budgetary Planning and Control

Learning Objectives

  1. Discuss the use of budgets in planning and control.
  2. Prepare the budget schedules that make up a master budget.
  3. Explain why flexible budgets are needed for performance evaluation.
  4. Discuss the conflict between the planning and control uses of budgets.

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Preston Joystick produces a joystick that is the top choice for many serious gamers.

At a meeting of key managers, Alan Renton, president of Preston Joystick, reviewed the past successes and failures of his firm. “As you know,” he concluded, “we've begun a new marketing campaign, and I am confident that next year sales will increase by at least 20 percent.” Jack North, the production manager, seemed caught off guard by this good news. “Look, Alan,” he said, “if you really think sales are going to take off, we've got to plan for the increase. I'll have to hire additional workers, and the people in purchasing will need to buy more parts so we don't run out.” Pam Smith, vice president of finance, chimed in. “Also, more sales means more inventory, and more inventory means we'll have to borrow additional funds to finance the expansion. I'll need some lead time to arrange the loan.”

The meeting ended with everyone agreeing that more attention should be devoted to planning ...

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