Chapter 9
Profit Planning
Solutions to Questions
9-1 A budget is a detailed quantitative plan
likelihood that all parts of an organization are
working together to achieve the goals set down
plans throughout the organization.
2. Budgets force managers to think about
to-day emergencies.
3. The budgeting process provides a means
of allocating resources to those parts of the
potential bottlenecks before they occur.
5. Budgets coordinate the activities of the
same direction.
6. Budgets define goals and objectives that
which a manager is held responsible for those
items of revenues and costs—and only those
then held responsible for differences between
budgeted and actual results.
future, and outlines the way in which these
plans are to be accomplished. The master
manufacturing overhead, selling and
administrative expenses, and inventories. The
9-5 The level of sales impacts virtually every
other aspect of the firm’s activities. It
cash budget and budgeted income statement
and balance sheet.
achieve those goals. Control, by contrast,
involves the means by which management
9-7 The flow of budgeting information
moves in two directions—upward and
his or her subsequent performance will be
measured. As the budget data are
plans of other units in the organization. Any
issues should be resolved in discussions
participate in the budgeting process—not just
top management or the accounting department.
developing the specifics in the budget. Top
levels of management should have a better
prepare their own budgets. This is in contrast to
a budget that is imposed from above. The major
estimates prepared by front-line managers are
often more accurate and reliable than estimates
operations. (3) Motivation is generally higher
when individuals participate in setting their own
above can always say that the budget was
them the risk of budgetary slack. The budgets
prepared by lower-level managers should be
staffing needs. Careful planning can help a
company avoid erratic hiring and laying off of
company will have in the bank at the end of the
year. Although this is one of the purposes of the
budget period, so that bank loans and other
sources of financing can be anticipated and
