What makes up a Master Budget
- 1. Operating Budget:
- 2. Finanical Budget:
- 3. Capital Expenditure Budget:
Sequence of Budget preparation
- Sales budget
- Production Budget
- Budget of other expense and revenue
- pro forma Financial statement
- Quantitative Models:
- REGRESSION ANALYSIS: Linear regression is a method for studying the relationship between a dependent variable and one or more independent variables. Y=A+bx
Probability Theory: Helps Deal with Uncertainty.
- Coeefficient of Correlation: measures relationship between 1 dependend and 1 independent variable.
- + if variable moving in the same direction
- - if moving in different
- 0 if scattered
Exponential Smoothing: Perdicts sales based on historical amounts. used to prepare annual profit plan
- Judgement Model:
- Delphi: Relies on judgement through questionaires.
Types of cost
- Explicit Costs
- Explicit costs are documented out-of-pocket expenses (e.g., wages, materials, and Utilities).
- Implicit Costs (Includes Opportunity Costs)
- Implicit costs are opportunity costs of inputs
- supplied by the owners (entrepreneurship,
- equity, capital, etc.).
- a. Opportunity Cost Definition- Opportunity
- cost represents the value of the next best
- alternative foregone (or not chosen).
- b. Opportunity Cost Measurement -Opportunity cost is usually considered to be
- the profits that are lost from business because one strategy is pursued
- instead of another.
- c. Items with not alternative use have no opportunity vc.