Business Environment and Concepts

FINANCIAL PLANNING .
A. Financial planning involves
1. Analyzing the investment and financing alternatives
2. Forecasting the future consequences of the alternatives .
3. Deciding which alternatives to undertake .. ......
4. Measuring subsequent performance ., ,.,-„
B. Financial planning is facilitated with a financial planning model, which generates
projected financial statements, operating and financial budgets, and scenario analysis.
C. Developing sales forecasts. --..,. .
1. Qualitative techniques
a. Executive opinions.
b. Sales-force polling.
c. Customer surveys. ;,. . , ...
2. Quantitative techniques •:
a. Moving average—Uses average for most recent periods.
b. Exponential smoothing—Moving average with more recent sales weighted more
heavily, c. Decomposition of time series—Extracts seasonal and cyclical
factors to arrive at
trend and then reintroduces the seasonal and cyclical factors to get forecast, d.
Regression analysis—Estimate sales based on observed relationships between
sales
and one or more predictors, e. Markov techniques—Estimate sales based on
consumer behavior.
D. Budgeting
1. Master budget is made up of
a. The operating budget—The budgeted income statement and supporting
schedules, b. The financial budget—The capital budget, cash budget, and the
budgeted balance sheet and statement of cash flows.
2. Flexible budget—Budget adjusted for sales volume.
3. Responsibility accounting—Allocates revenues, assets, and costs to
managers that the manager can control.
PROBLEMS AND SOLUTIONS ... FINANCIAL PLANNING

1. The financial budget includes the budgeted income statement for a

company. (True or False?)
Answer - The financial budget includes the capital budget, and the budgeted balance
sheet and statement of cashflows. The operating budget includes the budgeted income
statement. (False) .
2. The Markov technique involves forecasting sales by examining consumer
behavior. (True or False?) r
Financial Planning – 47

Business Environment and Concepts

2. In cost of quality methodology, the cost of product liability is classified as an
internal failure cost. (True or False?) j.
Answer - In cost of quality methodology, internal failure cost includes the cost of
products found to be defective and discovered prior to shipment to the customer.
External failure cost is the cost of defective products that are shipped to customers,
and includes cost of returns and product liability. (False) .
46 - Quality Control Principles