Discussion Week 3

Page 1 of 1 Accounting III

©2017 South University

Profit Planning Profit Planning. Profit planning is accomplished by preparing a set of budgets that are quantitative tools to acquire and use company's resources. The budget can be critical to the long-term success of a company. There are many advantages with communication and planning being at the top of those. The master budget makes up several sub-budgets that began with a sales budget. Once we have a sales budget, we can then create a production budget. Once the production budget is created, we can then do materials and labor budget as well as other related cost. The master budget will end in the projected financial statements which can help us see where we are headed. The sales budget is the first budget we produce and is considered critical since it begins the flow downward onto the other budgets. The sales budget looks at budgeted sales in total and multiplies that by the selling price per unit to arrive at total sales. Just like the sales budget is important to see how a company might end up doing in relation to profits, the cash budget is important in making sure that the company can stay afloat. Most budgets have the same process in that we are looking ahead sometimes for several months, predicting the numbers. With a strong sales budget, for example, we can plan for cash receipts in our cash budget.