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The Controller's Function: The Work of the Managerial Accountant, 4th Edition by Steven M. Bragg

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Chapter 5

Annual Plan

The purpose of this chapter is to explain the budgeting procedure and how the many subsidiary plans interlock to form the complete budget. Because the capital budgeting process is a complex part of the overall budget, it is discussed in Chapter 14. After an overview of the planning process, we give special emphasis to the sales planning process, since the accuracy of that budget determines the accuracy of the rest of a company's final budget. There is also a discussion of a variety of special budgeting topics, including the flex budget, attrition budgeting, and the most appropriate number of budgeting scenarios to prepare.

System of Plans

At the highest level, the annual budget is the method by which the company implements its long-range plan. The goals set forth in the long-range plan are used as the basis for the annual budget, given such restrictions as funding limitations, legal issues, and general economic conditions. In the budgeting process, revenues, costs, levels of operations, facilities, financial resources, and personnel are all considered and interrelated. The appropriateness of levels and types of costs and expenses are analyzed and interrelated, and modeling is used to predict the financial impact of alternative operating decisions. Thus budgeting is an iterative process that aids the manager in revising plans until an acceptable one is reached.

Exhibit 5.1 Sales Budget

Exhibit 5.2 Production Budget

Exhibit 5.3 Unit Purchasing Requirements ...

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