Budgeting Flashcards
What the purposes of budgeting systems?
- Planning
- Allocating resources
- Evaluating performance and providing incentives
- COntrolling porfit and operations
- Facilitating communication and coordination
What is the most common purpose of budgeting systems?
Planning
What is planning for?
To quanitify a plan of action for the operations of a pharmacy org
What does Facilitating Communication and Coordination entail?
Managers within an organization must communicate their plans with each other, to ensure effective operations.
WHat is allocating resources?
All resources are limited, so organizations must use their resources in the most effective, efficient manner.
Controlling Profit and Operations?
Remember that budgets are plans, and much like any plan in life, it is subject to change without notice
Budgets are benchmarks
Evaluating Performance and Providing Incentives
Important for managers to compare their operation’s actual results to their budgeted results when evaluating performances
Comprehensive collection of budgets that compiles all phases of a pharmacy organization’s operations for a specific time period
Mast budget
Demonstrates the resemblance of a pharmacy organization’s financial statements if its operations proceed according to plan
Budgeted financial statements
Includes a budgeted income statement, budgeted balance sheet, and a budgeted statement of cash flows
Budgeted financial statements
Profit plan
Master buget
pro forma financial statements
Budgeted financial statements
Plan for acquiring capital assets (i.e., buildings, equipment)
Capital budget
Plan that demonstrates how a pharmacy organization will acquire its financial resources (i.e., issuing stock, incurring debt)
Financial budget
Budget that cover a brief time period (i.e., month, quarter, year)
short range budget
Budget that covers a time period longer than one (1) year
Long range budget
Updated continually by adding a new incremental time (i.e., quarter) and dropping the period just completed
Rolling budget
“revolving budgets” or “continuous budgets”
Rolling budget
How should managers develop a master budget?
Sales busdget: determine the need for products and services to fulfill orders
Porduction budget: Provides an organization with the necessary information to determine how much of each input and conversion resource is needed
Financing budget: Estimates an organization’s cash flow and identify likely cash shortfalls and surpluses
Budgeting financial statements: The combination of the sales budget and production budget, along with organization’s input and resource cost estimates will provide the necessary elements of an appropriate budget
Sales revenue budget is based on?
Sales forcast for goods and services
Critical step in the budgeting process, as it can be very difficult to complete accurately
Sales forcasting
What are the components of an operational budget?
- Manufacturing
- Merchanidsing
- Patient care services
Types of budgets for manufacturing?
- Production
- Inventory
Ex: Pharmacy must store adequate inventory to meet the demand at all times while maintianing production
Ex of mercahndising?
Develop a costs of goods sold (COGS) budget, along with budgets for labor (i.e., personnel), overhead, and selling and administrative expenses.
Types of budgets for patient care services?
Production
Types of financing budgets?
Cash receipt budgets
Cash disbursements budget
Cash budget
Provides information about the cash flows into the pharmacy organization based on sales of goods or services
Cash Receipts Budget
Complex budget that is dependent on the spending plans reflected in several operational budgets
Cash Disbursements Budget
Provides a summary of various cash inflows and outflows from operations, which helps managers to plan the cash needs of a pharmacy organization
Cash budget
What do you do if cash outflow is greater than inflows?
Arrange for sources of borrowing money
What do you do if cash inflow is greater than outflow?
Pay off borrowings and make investments
What is an important tool for predicting and avoiding cash emergenicies?
Cash budget
What are the elemetns of the final step of developing a master budget?
Budgeted income statement
Budgeted balance sheet
Budgeted statement of cash flows
Activity-based costing (ABC) steps?
- Managers assign overhead costs to cost pools that represent the most important activities.
- Overhead costs are allocated from each activity cost pool to cost objects, proportional to the amount of activity consumed
Ex: utilities bill for an independent community pharmacy
How does acitivty based budgeting differ from ABC?
Reverses the flow of the analysis:
1. Specify the products and services
2. Determine necessary activites to produce services/products
3. Quanify resources to perform activity
Ex: Projection of sales in newer companies
