Premium Essay

Budget and Forecasting

In: Business and Management

Submitted By sethtsolomon
Words 1584
Pages 7
Understanding budgets and financial statements was a critical component in the simulation. The success of Elite Solutions depended on the ability to assess the company’s financial position at any given time and make informed decisions based on the information provided.

I chose to take a conservative approach at production capacity out of the gate, beginning the simulation with a capacity of 25 units per day, as the likelihood of sales exceeding that mark would have been highly unlikely and understanding that turning a profit is a tall order in the first quarter of any business. Initial budgeting was focused on directing the company’s limited capital toward the opening of the first two locations, New York and Tokyo. As the simulation moved into the 3rd and 4th quarters, it became imperative to budget for factors outside the realm of manufacturing. Each quarter, the ability to direct advertising, marketing research and human resource dollars was a requirement for success. The need to balance adequate staffing needs in relation to production and product demand required the use of multiple research and demand projection budgets.

From the onset, my goal was to turn an overall profit during the first 4 quarters of operation. The pro-forma statements give simple to understand metrics of the financial position of Elite Solutions. Each quarter, I was able to ascertain the financial position, specifically regarding net operating cash flow and the cash balance at the end of each period to determine the relative success of each quarters’ activities.

My initial approach to the manufacturing process was based primarily on projections of future demand. In the simulation, this is an area I had significant concerns in, especially during the 2nd quarter where operating capacity had skyrocketed. There are a number of strategies available to improve efficiency...

Similar Documents

Premium Essay

Fin 370

...• Define the difference between forecasting and budgeting. What is the difference between an operating budget and a cash budget? The first that we need to understand is the definition of both forecasting and budgeting. Forecasting explains that it is “a planning tool that helps management in its attempts to cope with the uncertainty of the future, relying mainly on data from the past and present and analysis of trends. Forecasting starts with certain assumptions based on the management’s experience, knowledge, and judgment.” From this definition we can understand the basic concept of forecasting is when estimates are not necessarily achievable or realistic. It is also important that we understand the meaning of budgeting. This term is defined as “an estimate, often itemized, of expected income and expense for a given period in the future.” The definition of budgeting helps us to understand that it is similar to forecasting because it determines an estimate for the future. A budgeting estimate is both obtainable and achievable unlike forecasting. Now that we understand the meanings of both budgeting and forecasting it is important that we understand what real life examples would look like which will help us to determine the differences. An example of budgeting would be if a corporation wanted to know what quantity of a specific item needed to be sold at a certain price. For example if the organization was selling computer keyboard for twenty dollars per item and the......

Words: 704 - Pages: 3

Premium Essay

Operations Director

...Operations Update. . Diadora Operations Priorities. Spring Summer 2012 Timelines Sales Forecasting Logistic Platform (HK) Spring Summer 2012 Production Schedule Brand Protection Program Quality Continuous Improvement Sourcing Fall Winter 2012 . Diadora Operations Priorities. Spring Summer 2012 Timelines Sales Forecasting Logistic Platform (HK) Spring Summer 2012 Production Schedule Brand Protection Program Quality Continuous Improvement Sourcing Fall Winter 2012 Sales Forecasting. Macro process, players and final goal Forecast Budget Forecast Budget Markets Sales Planning Vendors Deliveries in full on time Sales Forecasting. Macro process, players and final goal Forecast Budget Forecast Budget Sales Planning Vendors Deliveries in full on time Sales Forecasting. Macro process, players and final goal Forecast Budget Forecast Budget Markets Sales Planning Vendors Deliveries in full on time Sales Forecasting. Process in details Fall Winter 2012 & Spring Summer 2013 Line Plan, CADs, Proto Samples 1 3 Steps Sales Forecast Process 1st Sales Forecast SMS Order Capacity Plan Pre Costing Final Allocation Final Costing Minimum Check Drop 2 3 Photo Samples Arrival 2nd Sales Forecast Sales Meeting & SMS Arrival 3rd Sales Forecast Raw materials Purchasing Plan & Cut Off Schedule Sales Forecasting. Process in details – Fall Winter 2012 1st & 2nd Forecast results Line Plan,......

Words: 1246 - Pages: 5

Premium Essay

Business Economics

...statistics to make effective decisions. Controllers in accounting are professionals which directly deal with financial matters and especially in cost control and budgeting. Controllers use statistics software to analyze and interpret data that helps them to make strategic and short term decisions. Question#2.a There are many issues related to controllers while making decisions on the basis of available data. Budget forecasting is very important for controllers because this tool is used to control costs and increase revenue. Deviation of budget from actual or real budget is primary issue and controllers strive hard to minimize deviations from mean. At the start of financial year, controllers are asked to prepare budget for the complete year through using realistic approach. Deviation in the budget occurs due to sensitivity of variables. Probability is very useful and important technique used in the forecasting process. Controllers use statistics and probability technique to reduce uncertainty and variance in the data. Although probability is very useful in the forecasting but when controllers inaccurately assign probability weightage to the variables then decision will not be accurate. b. There are many variables in the data file which are analyzed in different manners and through accurate analyses these variables can make decisions more accurate and meaningful. We have selected two variable which are growth and interest rate. When controllers analyze financial......

Words: 937 - Pages: 4

Premium Essay

Operations Management

...Forecasting or estimating the demand for finished goods or services is the starting point for all operating activities. It is the trigger that sets the supply chain in motion including the preparation of: * Capital budgets for plant and equipment and shorter term operating budget * Production plans * Short-term operating cash requirements * Personnel needs either full time, part time or contract basis * Capacity levels of equipment, machines, and buildings * Purchase requirements of raw materials, components and services * Plans for subcontractor requirement s * Transportation requirements for raw materials, finished goods and/or personnel Forecasting product, customer demand or other activity is one of the most inexact functions in management. An individual has to understand and evaluate the external environment where there is considerable uncertainty including the market, clients, and changing technology. Poor forecasting of client needs by the marketing department often is the reason for slack production planning and as a result contributes to friction between marketing and production personnel. \ A medium – range forecast is one that covers about three months up to one year. In this case it would include forecasting items such as: Sales plans, production plans and operating cash budgets. Forecasting technique used in this case study is time series. A time series is historic or past date that have been collected over a regular period of time,......

Words: 489 - Pages: 2

Premium Essay


...Financial Forecasting Amy Spangler FIN/200 June 15, 2012 University of Phoenix Financial Forecasting Financial Forecasting Checkpoint The most comprehensive means of financial forecasting is to develop a series of pro forma, or projected, financial statements. Based on the projected statements, any firm is able to estimate its future level of Receivables inventory, payables, and other corporate accounts as well as its anticipated profits and borrowing requirements. A brand new company needs to have a sales projection plan, production plan, to put together a pro forma income statement a new company doesn’t have a prior balance sheet, a income statement, cash balance sheet and other budgets plans would be used to secure operating capital and loans from the bank. I as a new company would need to know how much product we need to make, how much each item cost to make, and how much revenue is expected. A family owned company is in the same boat, sales projection, production plan, cash balance and any other plans are needed in this situation. I really don’t see any difference in this situation then a new business. Knowing a family business has a sales plan and budget sheets, is necessary to get lending from the bank and for planning on how to pay personal monthly bills. A long standing company is no different, and then the previous two companies otherwise it would be long standing. Pro forma income statements, cash budget, and other budgets used together equal a pro forma balance......

Words: 328 - Pages: 2

Premium Essay

Gillermo Furniture Store Analysis

...Accounting 561 Michael De Marco November 14, 2010 Introduction Gillermo Furniture Store Analysis Risks Associated with Sales Forecasts Sales forecasting and budgeting are important tools used to evaluate the results of the company. The sales forecasting are used as guidelines that direct the company to the right path and help the management achieve the company’s goals. The company may face many risks when forecasting or creating budget and this is related to unethical decision making. Sometimes mistakes occur either because of misrepresentation of numbers when creating a budget or because wrong decisions made by managers that aimed to increase income and resources. This will cause financial loss and failure to the company because the data used in the budget are inaccurate that will cause errors in the future numbers. According to Horngren, (2008) sales forecast is defined as, “a prediction of sales under a given set of conditions.” Forecasting is usually done using many techniques and the most important is based on data from past history to predict the future demand. The only error that may occur is that when there is a mistaken assumption in the past sales demand will continue into the future (Chase, 1993.) Guillermo Furniture store considers sales forecasting as a strong foundation to build the company’s sales budget. Guillermo recognizes the risks from using past demand data and he is aware of what the drivers of sales demand are for his furniture now.......

Words: 996 - Pages: 4

Premium Essay

Financial Forecasting

...Lecture notes chapter 4 Financial Forecasting                           Author's Overview   Developing pro forma statements is a fairly involved process.  However, the rewards to students are high in terms of understanding the interaction of accounting data and financial forecasting.  The development of pro forma financial statements is an integrative exercise, so there is little reward for a halfway approach.   The percent-of-sales method, presented at the back of the chapter, is a second approach to financial forecasting. It has the virtue of being easily understood and quickly mastered, but it does not have  the full validity of developing pro forma statements.   It is really a matter of instructor preference.                                                                 Chapter Concepts   *          Financial forecasting is essential to the strategic growth of the firm.   *          The three financial statements for forecasting are the pro forma income statement, the cash budget and the pro forma balance sheet.   *          The percent-of-sales method may also be used for forecasting on a less precise basis.   *          The various methods of forecasting enable the firm to determine the amount of new funds required in advance.   *          The process of forecasting forces the firm to consider seasonal and other effects on cash flow.                                                Annotated Outline and Strategy   I.          Need for Financial......

Words: 1382 - Pages: 6

Free Essay

Budget in Managerial Accounting

...definite and specific plans or budgets for a limited future period, usually the ensuing fiscal or calendar year. These plans, which take into account all phases of the budgeted operations, are given expression in financial terms. They also become standards against which to measure and evaluate actual performance as the period progresses. Budgeting is, therefore, not only a short term planning and coordinating process, but is also a means of exerting management control over budgeted operations. Budgeting becomes a management process rather than a financial one. Budgeting, as Distinguished from Forecasting Forecasting and budgeting, despite their similarities, should be clearly distinguished from each other. A forecast is a prediction of likely future events. But, unlike a budget, a forecast is not a plan for achieving those forecasted (desired?) results. And a forecast is too general to serve as a control standard against which actual progress across the period can be measured. Forecasts are the starting point in the budget planning process. Most firms and public agencies precede the preparation of their operating budgets with revenue forecasts and expectations of economic conditions within their markets or constituencies, and in the world's economy as a whole. We've just witnessed how economic conditions in Greece and Italy have affected the United States, as well as the poor financial climate since 2008. Essentially, the forecasting process analyzes......

Words: 621 - Pages: 3

Premium Essay


...Excellence in Financial Management Course 2: Financial Planning and Forecasting Prepared by: Matt H. Evans, CPA, CMA, CFM This course provides a basic understanding of how to prepare a financial plan (budgeted financial statements). This course will also discuss some of the problems associated with budgeting along with "best practices" in budgeting. This course is recommended for 2 hours of Continuing Professional Education. In order to receive credit, you will need to pass a multiple choice exam which is administered over the internet at Revised March 2000 Chapter 1 The First Steps Introduction Financial planning is a continuous process of directing and allocating financial resources to meet strategic goals and objectives. The output from financial planning takes the form of budgets. The most widely used form of budgets is Pro Forma or Budgeted Financial Statements. The foundation for Budgeted Financial Statements is Detail Budgets. Detail Budgets include sales forecasts, production forecasts, and other estimates in support of the Financial Plan. Collectively, all of these budgets are referred to as the Master Budget. We can also break financial planning down into planning for operations and planning for financing. Operating people focus on sales and production while financial planners are interested in how to finance the operations. Therefore, we can have an Operating Plan and a Financial Plan....

Words: 5904 - Pages: 24

Premium Essay

Importance of Sales Forecasting to the Entrepreneurial Start-Up Firm

...analysis………………………………………5 2.1 What is sales forecasting……………….……………………………...5 2.2 Importance of forecasting in a new B2C business………….…………5 2.3 What affects sales forecasting?..............................................................6 2.4 Techniques of sales forecasting…………………….…………………7 2.4.1 Judgmental methods……………………………………….7 2.4.2 Counting methods………………………………………….8 2.4.3 Newer methods…………………………………………….8 2.5 Adapting forecasting to the company……………………………………...9 3. Conclusion……………………………………………………………….….9 References…………………………….………………………………………10 LIST OF FIGURES Figure 1: Elements of sales forecasting………………………………………………………………..7 Figure 2: Forecasting techniques used in practice …………………………………………………….8 1. Introduction This report discusses the importance of sales forecasting to the entrepreneurial start-up firm in B2C market. The previous assignment discussed the case study on the new set up business related to food industry. The business idea was to create a website and a mobile application that allows office people to order healthy food by choosing every ingredient to suit their personal taste. The concept is quite new to the market so the management has to look into the future sales by implementing sales forecasting.  So, the aim and objectives of this report are as follows: Aim: ·         To discuss why sales forecasting is important to the entrepreneurial start-up business in B2C Objectives: * To explain the nature of forecasting......

Words: 2231 - Pages: 9

Premium Essay

Food Groups

...Harman Food’s had difficulty in forecasting sales for their main product named “Treat”. The problem presented a domino effect on other parts of the company like advertising, expenditures, and budget controls. Throughout the company Brand managers prepared brand’s budget on monthly quarterly and annual forecast. Intern these budgets went to MacIntyre as official budget, and became an element of the production schedule. After evaluating all the steps and effects the budget forecasting had, management dived into the influential factors that affect sales. For example season trend alerts like decrease in sales in November and December due to low level of end of year inventory. As well as less sales, due to summer plant shut downs. These factor are all effecting the demand and shipment of Treat. The main problem identified was that end of year sales increased due to buildup of inventory, and the reaction to the buildup was as late as two months. We believe that Harman Food’s faces the same challenges that many manufacturers, distributors, wholesales, and retailers due. When manufacturing products there seems to always be tug of war element between production and sales. Pull to strong on one side and the supply demand curve shifts and the same for the other side. The important thing is to identify product and market variables. The variable will be consistent, as the product or market can fluctuate. This will allow for a steady balance. The manager did a good job of......

Words: 454 - Pages: 2

Premium Essay

Project Manager

...economics. First, the paper documents inaccuracy and risk in project management. Second, it explains inaccuracy in terms of optimism bias and strategic misrepresentation. Third, the theoretical basis is presented for a promising new method called "reference class forecasting," which achieves accuracy by basing forecasts on actual performance in a reference class of comparable projects and thereby bypassing both optimism bias and strategic misrepresentation. Fourth, the paper presents the first instance of practical reference class forecasting, which concerns cost forecasts for large transportation infrastructure projects. Finally, potentials for and barriers to reference class forecasting are assessed. The American Planning Association Endorses Reference Class Forecasting In April 2005, based on a study of inaccuracy in demand forecasts for public works projects by Flyvbjerg, Holm, and Buhl (2005), the American Planning Association (APA) officially endorsed a promising new forecasting method called "reference class forecasting" and made the strong recommendation that planners should never rely solely on conventional forecasting techniques when making forecasts: "APA encourages planners to use reference class forecasting in addition to traditional methods as a way to improve...

Words: 6964 - Pages: 28

Premium Essay

Planing and Controlling the Supply Chain my chosen corporation American Express applies some of the forecasting techniques to better develop the company. There will also be the analysis of production plans, master production schedules, and carrying inventory and how it relates to the overall American Express budget. Along with all the above we will also compare and contrast how planning usage differentiates between a service organization such as American Express and a manufacturing organization. Lastly we will also compare and contrast the use of material requirements planning system concepts. When it comes to forecasting it is first important to determine the different types of forecasting and how they are classified. In forecasting there are four basic types which are qualitative, time series analysis, casual relationship, and simulation. The first forecasting type qualitative is "subjective or judgmental and are based on estimates and opinions", (Chase, Jacobs, & Aquilano, 2006). Some of the main characteristics of qualitative forecasting are market research which is encompassed by collecting data by surveys and interviews which help determine market hypothesis. This research is most commonly used for long range and new product sales. This would be a great description as to when American Express uses surveys to improve on new production of invoicing and reporting tools to provide to our clients. Another characteristic to qualitative forecasting is historical analogy. This is the one characteristic that......

Words: 1324 - Pages: 6

Premium Essay

Budget Management Analysis

...Budget Management Analysis Budget management is an important concern for organizations, especially today with the economic strain on businesses. The strategies to manage budgets and possible variances will be addressed within the context of this paper. A comparison of five expense results with the budgetary expectations and reasons for possible variances will be presented. Benchmarking techniques that may improve budget accuracy in future forecasts will also be concentrated on within the body of information presented Managing a Budget within the Forecasts According to Finkler, Kovner, and Jones, (2007), organizations exercise control over operations through the use of a management control system. The determination of whether a business is able to appropriately budget for future expenses, economic downturns, and risks is critical in today’s economic crisis. The methods by which a budget is created are specific and take into consideration several factors that provide target, actual, and variance results. The strategies used to create a budget vary among industry, organization, department, and/or manager just to name a few. Budget variances, strategies, and benchmarking techniques are critical to the final budget formulated for a business. A budget is a way to assist managers to follow a set strategic plan to ensure resources are used to efficiently to achieve the goals and follow the mission of the organization. A budget provides estimates of revenue, expenditures...

Words: 1281 - Pages: 6

Premium Essay

Financial Planning

...Financial Planning Financial planning involves budget, financial map or operating guide (Principles of Accounting, n.d.). Financial planning has many functions: a breakdown of budget, money coming in, and money going out - except the money going out is all planned and knowing where it will go or end up. Financial planning is making plans to attain that goal – money wise. Financial planning provides many elements for detailed sales targets, staffing plans, inventory production, cash investments and borrowing capital expenditures for plant assets and others. It also involves risk management. Proper financial planning gives the company guidance on how to proceed with expenses and funds. Better financial planning leads to proper prioritizing of goals and work towards long-term goals. Financial planning involves strategic plan which includes the plan that supports the mission, vision and values of the organization. Operating plans which includes a detailed guidance to help organizations realize its strategic vision. Financial Plan which involve the forecasting of financial statements, the amount of money that supports the plan, forecasting of funds, performance-based management system, and the monitoring of operations after executing the plan to check any nonconformities and take actions towards it. (Ehrhardt and Brigham, 2011). Financial planning helps the companies minimize costs and maximize profits. One method of financial planning is the......

Words: 900 - Pages: 4