Next Week

No lecture next week(6th). No tutorials next week. Next Tutorials: Monday 12th November
Budgeting Q1 of extra questions)

Next Lecture: Tuesday 13th November

(Investment Decisions)

12 - 1 in CKY502

Budgeting

The Aims of the Organisation

3M to be the most innovative enterprise and the preferred supplier in every market in which it is involved.

The University of Plymouths mission is to be the enterprise university of excellence serving the region which:
Delivers teaching and research to world-class standards; Fosters scholarship and culture; Develops responsible students capable of critical reasoning and practical action; Is open and accessible; Is an effective community working in partnership with others.

Your Facultys Mission is:

.to graduate the most employable, engaged and entrepreneurial students in the country.

Objectives
Must be specific and measurable. Will be set for all functional areas. 3M 1) An increase in earnings per share of at least 10% annually. 2) A return on capital employed of 27% or better. 3) At least 30% of sales must come from products new in the past 4 years.

University of Plymouth Key Performance Targets 2004-9 By 2009: At least 10% of our full-time undergraduate and postgraduate students will be overseas students By 2007: 20% of our students will be postgraduate / post-experience students Finance related objectives: budget to generate an annual surplus of 1% of turnover
(in 2009-10 it was 3.8%)

build and maintain reserves in excess of 5% of turnover

(in 2009-10 it was 9.4%)

ensure the ratio of current assets to current liabilities remains in excess of 1:1 (in 2009-10 it was 1.52:1)
Extracted from Corporate Plan 2004-9 (The Strategic Plan 2009-12 refers to Themes, not specific objectives)

Identify the options available:

External Analysis market size and growth prospects level of competition The industrys cost structure The companys bargaining power

Internal Analysis Marketing & distribution Manufacturing & production Finance & administration Research & Development Technical Services

The projections:
Take account of the required financing and investment for each option. Take account of the revenues and costs. Show the impact of these on profitability liquidity Help us gauge whether an option is acceptable. Are prepared for internal purposes.

The projected financial statements summarise, in financial terms, the plans of the company.

BUDGET a Financial Plan for a period of time.

FORECAST What is expected to happen a more passive approach

The interrelationship of various budgets

Trade debtors budget Cash budget Trade creditors budget

Sales budget

Overheads budget

Capital expenditure budget

Direct labour budget

Raw materials purchases budget

Finished stock budget

Production budget

Raw materials stock budget

Note: 1) Each assumption will affect other activities & departments. 2) Ensure that all of the departments plans are compatible. Changes will be required if not. 3) Different combinations of assumptions will be tried to get the overall best fit. 4) The results will be summarised in the form of Financial Statements.

Six reasons to Budget

Planning Coordinating Communicating Motivating Controlling Evaluating

The Master Budget

Cash Budget Budgeted Income Statement Budgeted Balance Sheet

How to set standards?

1) Use historical records eg labour & material usage
Problem: past inefficiencies will be incorporated into the standard

2) Perform a study of each operation Measure the level of inputs required for the operation. This can also involve trial runs and controlled observations

Targets
How challenging should they be? Perfection Will people give up? Attainable Will people relax? How to have challenging targets without punishing adverse performance? Zero Defects campaigns Beware a Blame Culture