Question

pretend you are the Chief Financial Officer (CFO) of a manufacturing company. One day, a college accounting student contacts you and requests an interview. The student says that his Managerial Accounting class is studying budgets. One of their assignments requires them to interview a financial officer about the budgeting process. Of course you agree to the interview!

The accounting student comes into your office with a prepared list of questions. As the CFO, how would you respond to each of these items?

Briefly identify the type of company you work for and its core business.

How does the company set its overall budget goals?

Who participates in the process and how much input does each of the participants have?

Describe the flow of budget data in the organization.

How are the budgets used in the organization?

What are one or two of the benefits gained from budgeting?

Answer 1

A) i am currently working as the CFO of this manufacturing company .its core business is producing spare parts of cars  

b) First we analyse the inustry and economic conditions using SWOT analysis,SWOT is the acronym for strengths,weaknesses, opportunities, and threats. A SWOT analysis provides a means to organize the data gathered in detailed internal and external analyses. Strengths and weakness are identified from an internal analysis of the organization; opportunities and threats are part of an external analysis of the environment in which the organization operates. SWOT analysis is also referred to as a current state analysis.Organizational goals and strategies cannot be left to chance and intuition. They must be explicitly stated and clearly communicated to those in the organization responsible for their implementation. For that reason, an important step during strategic planning is to formally write out the organization’s vision, mission, goals, and objectives.An organization’s vision statement is a guiding image of future success and achievement articulated in terms of the organization’s contribution to society. It is a succinct statement of what an organization will do for future generations and how it wants to be perceived.A mission statement provides the guiding compass for an organization. A mission statement answers this question: Why are we in business? In answering this question, a mission statement must be accurate, easily understood, motivating, and transferable into action.Strategic goals are established at the highest levels of an organization. Strategic goals are long range in nature.Objectives provide the details or actions required to support the goals. Well conceived objectives specify the quantitative measures that will be used to track,progress and performance—the desired action, the timing of the action, the level of performance desired, and the function or individual responsible for the action.After after analysing all this points a overall budget goal is created

c) Three groups make or break a budget: the board of directors, top management, and the budget committee. Middle and lower management also play a significant role, because they create detailed budgets based on upper management’s plan

The board of directors does not create the budget, but it cannot abdicate its responsibility
to review the budget and either approve or send it back for revision. The
board usually appoints the members of the budget committee

Top management is ultimately responsible for the budgets, and the primary means top managers have of exercising this responsibility is to ensure that all levels of management understand and support the budget and the overall budget control process. If top management is not perceived to endorse a budget, line managers will be less likely to follow the budget precisely. Also, top managers should pay close attention to how they are affecting each line manager’s budget, because insensitive policies could result in creative budgeting on the part of staff.

Large corporations usually need to form a budget committee composed of senior management and often led by the chief executive officer (CEO) or a vice president. The size of the committee will vary depending on the organization. The committee directs budget preparation, approves budgets, rules on disagreements, monitors the budget, reviews results, and approves revisions.

Once the budget committee sets the tone for the budget process, many others in the organization have a role to play. Middle and lower management do much of the specific budgeting work. These managers follow budget guidelines, which are general guidelines for responsibility centers preparing individual budgets set by either top management or the budget committee. A responsibility center, cost center, or strategic business unit is a segment of a company in which the manager is vested with the authority to make cost, revenue, and/or investment decisions and therefore also set budgets.

D) A budget starts with operating budget, the various pieces are assembled, including, the sales budget, the production budget, the direct materials budget, the direct labor budget, the overhead budget, and the S&A expense budget. The individual operating budgets are then used to create the pro forma (or budgeted) income statement.Once a company completes the various pieces of the operating budget it next develops the necessary financial budgets to identify the assets and capital (both debt and equity) needed to support the operation. These financial budgets include the capital expenditure budget, the cash budget, the pro forma (or budgeted) balance sheet, and the pro forma (or budgeted) statement of cash flows

E) Budget is an operational plan and a control tool for an entity to identify the resources and commitments needed to achieve the entities goals on a particular period of time,The plan includes the company’s short-term as well as long-term goals and objectives and its business opportunities and risks.The plan developed by management leads to the formulation of the annual profit plan, also called the budget,Budgets provide feedback to the planning process because they quantify the likely effects of plans that are under consideration. This feedback may then be used by managers to revise their plans and possibly their strategies as well, which will then cause revisions to the profit plan during the budgeting process.Once the plans and the budget have been coordinated and the budget has been adopted for the coming period, as the organization carries out its plans to achieve the goals it has set, the master budget is the document the organization relies upon as its operating plan.Sometimes, the comparison of actual results to the profit plan will result in the revision of priorplans and goals or the formulation of new plans, changes in operations, and revisions to the budget.

F) The budget is  used to alleviate potential bottlenecks and to allocate resources to those areas that will use the funds most efficiently and effectively.

Budgets uses the forward-looking information from more comprehensive forecasts. Therefore, the forecasts directly used in the budgeting process, such as the sales forecast, will have a high level of accountability