Question

In Milestone 4, after you reviewed the economic and industry projections for the upcoming year relating to the master budget, you are now asked to make some predictions about the projected balances sheet and statement of cash flow ending balances. At the conclusion of this case, there are some links to sources that will assist you as you put yourself in the position of management at the end of 2016 trying to plan for 2017. Begin with the prior year’s Statement of Cash Flow and Balance Sheet. Then identify major changes that you would expect for only for the automotive division operating cash flow, investing cash flow and financing cash flow that might occur by the end of 2017. In Memo #4 you describe your expectations related to the Statement of Cash Flow and compare your expectations to the actual year ending 2017 Cash Flow Statement. In Memo #5 you describe your expectations related to the Balance Sheet accounts of the automotive division as of Dec. 31, 2017 and compare your expectations to the actual year end balances. Identify major changes that you would expect for only for the automotive division relating to its major current and long-term assets, current and long-term liabilities and equity accounts that might occur by the end of 2016. The controller wants you to prepare a memo identifying the advantages and disadvantages of benchmarking with major competitors. In Memo #6 you include your research on two of Ford’s competitors and identify 3 key performance indicators. One of the key performance indicators should be a non-financial measure. Your final memo, Memo #7 response to the controller who asked you to provide key points for a presentation he/she will be making to the Board of Directors. You are asked to identify the following items: a. The key characteristics of an effective budget system. b. The steps to prepare a master budget. c. Describe a flexible budget and explain how it assists management in evaluating performance at the end of an accounting year.

Answer 1

a) Key characteristics of an effective Budget:

1) It should be measurable by authentic source of information.

2) Effective budget shall shall cover all factor of resources which are going to affect in a given budgeted period.

3) It should reflact a systematic and scientific means of data and assumptions.

4) Budget shall have its reasonable and realiability viability.

B) Following are the steps to prepare a master budget:

1) Collect raw data from from each and every source and ensure its completeness.

2) Compile the collected data and prepare a statement of compilation.

3) Analyse the data from the statement of compilation.

4) Prepare the master budget according to need and the requirement.

C) Flexible budget : It means a budget which has the scope of flexibility in its domain so that it can adopt a change and this change can not destroy its basic function of the prepared budget. Flexible budget shall have its scope to adopt change at any stage and any time whenever there is a change on circumstances occurs.

It assist management in evaluating performance at the end of an accounting year in the following ways:

1) Fix changes at any time at any stage.

2) Uncertainty is not a material factor at all for the management.

3) Management can take decision according to changing need of business.

4) flexible budget helps the management to take redial action in the dynamic environment.