Managerial: Accounting

5

PLANNING AND FORECASTING

After studying this chapter, you should be able to meet the following learning objectives (LO).

1. Describe the budget development process and explain how it fits into management's planning process. (Unit 5.1)
2. Calculate the standard cost of a product. (Unit 5.2)
3. Prepare the operating budget and describe the relationships among its components. (Unit 5.3)
4. Prepare the cash budget and describe the relationships among its components. (Unit 5.4)
5. Prepare pro-forma financial statements and describe their relationship to the master budget components. (Unit 5.5)

The Pitch

During 2010, George Douglas, president of C&C Sports, became increasingly concerned about the company's cash difficulties. The company ended the year with about $7,000 in cash, and with no operational changes planned for 2011 George fears that balance is too low if unexpected expenses should arise. For the last few years, the company has not generated enough cash to sustain operations and has had to acquire short-term loans while at the same time paying off long-term debt. Sales and income are increasing, but so are inventories, which tie up the company's cash. How can George increase cash and reduce C&C's borrowings?

To remedy this situation, George knows that he needs to increase sales, reduce ...