1. Budgets • Purposes of personal budgeting. o See first and second purposes pg 874. To develop a plan to meet a goal, and to allow ongoing comparisons between actual results and the plan. o See 3rd paragraph pg. 875. For sure an exam question. “Individual who budget successfully typically find that they can purchase those things that they feel they really want to have. In fact, budgeting does not really limit spending. The only real difference between individuals who budget and those who don’t is that those who budget will spend money how, where, and when they want to, and those who do not budget often feel like they never have enough money to purchase those things that they really need.” o Also know characteristics of good personal budgeters pg 875 • Know the first, second, and third important Behavioral Considerations pg 876-877. • Top-Down vs. Bottom-up 1. 3 advantages of top-down and 4 advantages of bottom-up pg 877 (always an exam question) • I did not hold you accountable for the manufactures budgets in the chapter. But do know the sequence of budgets. See pg 879. 1. Sales Budget must be 1st. 2. Production Budget is 2nd 3. 4. 5. These 3 can be in any order. Direct Materials Budget, Direct Labor Budget, and the OH Budget 6. Followed by the Budgeted Income Statement 7. Budgeted Balance Sheet
2. Capital Investments and the time value of money. • Capital Budgeting = The systematic planning for long-term investments in company assets such as office buildings, equipment, manufacturing plants, computers, etc.. (pg 1175)
3. Three aspects of capital investment decisions are critical to long-run profitability. (pg 1176)
4. THE TIME VALUE OF MONEY
• By far the most important concept to know and understand how to make it work for you. Please read this section very carefully. (pgs 1177-1180) Then look at the amount of times your money will multiply as you look down the years and across the interest rate columns on Table IV on pg B4.
5. Discounting Cash Flows (pg 1177) present value amounts (today’s amt) are/is always less than future amounts. This is why we receive less than a million dollars if we choose the cash payout in a million dollar lottery win.
6. Capital Budgeting Techniques (pg 1181) • What are they? Tools used to evaluate an investment. • Payback Method – this is the only method you need to know how to calculate • Qualitative Factors in Strategic and Capital Investment Decisions (pg 1195-1197) There are times that the tools may suggest
