Budgeting Basics and Beyond, Fourth Edition

542 Pages·2011·6.03 MB·English

by  Jae K. Shim

Budgeting Basics
and Beyond
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Budgeting Basics
and Beyond
Fourth Edition
JAE K. SHIM
JOEL G. SIEGEL
ALLISON I. SHIM
JohnWiley&Sons,Inc.
#
Copyright 2012byJaeK.Shim,JoelG.Siegel,AllisonI.Shim.Allrightsreserved.
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LibraryofCongressCataloging-in-PublicationData:
Shim,JaeK.
Budgetingbasicsandbeyond/JaeK.Shim,JoelG.Siegel,AllisonI.Shim.—4thed.
p.cm.—(WileyCorporateF&Aseries)
Includesindex.
ISBN978-1-118-09627-7(hardback);ISBN978-1-118-12796-4(ebk);
ISBN978-1-118-12797-1(ebk);ISBN978-1-118-12798-8
1. Budgetinbusiness. I. Siegel,JoelG. II. Shim,AllisonI.,1984– III. Title.
HG4028.B8S5582011
0
658.154—dc22
2011015866
PrintedintheUnitedStatesofAmerica
10 9 8 7 6 5 4 3 2 1
ToChungShim,dedicatedwifeandmother;
RobertaM.Siegel,lovingwifeandcolleague;
andSylviaandArnoldSiegel,lovingmotherandbrother
Contents
AbouttheAuthors xi
Preface xiii
Chapter1:TheWhatandWhyofBudgeting:AnIntroduction 1
Chapter2:StrategicPlanningandBudgeting:
Process,Preparation,andControl 29
Chapter3:AdministeringtheBudget:Reports,
Analyses,andEvaluations 45
Chapter4:Break-EvenandContributionMarginAnalysis:
Profit,Cost,andVolumeChanges 57
Chapter5:ProfitPlanning:TargetingandReaching
AchievableGoals 79
Chapter6:MasterBudget:GenesisofFinancial
ForecastingandProfitPlanning 95
Chapter7:CostBehavior:EmphasisonFlexibleBudgets 119
Chapter8:EvaluatingPerformance:TheUseof
VarianceAnalysis 131
Chapter9:ManufacturingCosts:SalesForecasts
andRealisticBudgets 191
Chapter10:Marketing:BudgetingforSales,Advertising,
andDistribution 203
vii
viii & Contents
Chapter11:ResearchandDevelopment:Budgetsfor
aLong-TermPlan 223
Chapter12:GeneralandAdministrativeCosts:
BudgetsforMaximumProductivity 237
Chapter13:CapitalExpenditures:AssetstoBe
Bought,Sold,andDiscarded 243
Chapter14:ForecastingandPlanning:Reducing
RiskinDecisionMaking 267
Chapter15:MovingAveragesandSmoothingTechniques:
QuantitativeForecasting 277
Chapter16:RegressionAnalysis:PopularSalesForecastSystem 289
Chapter17:CashBudgetingandForecastingCashFlow:
TwoPragmaticMethods 301
Chapter18:FinancialModeling:ToolsforBudgeting
andProfitPlanning 315
Chapter19:UsingSoftwarePackagesandE-Budgeting:
Computer-BasedModels,Spreadsheets,and
Web-BasedSystems 329
Chapter20:CapitalBudgeting:SelectingtheOptimum
Long-TermInvestmentandRealOptions 351
Chapter21:BudgetingforCostManagement:Activity-Based
BudgetingandLife-CycleBudgeting 393
Chapter22:Zero-BaseBudgeting:PriorityBudgetingforBest
ResourceAllocation 411
Chapter23:Managers’PerformanceandBalancedScorecard:
EvaluationattheDivisionLevel 419
Chapter24:BudgetingforServiceOrganizations:
SpecialFeatures 453
Contents & ix
Chapter25:BudgetingforNonprofitOrganizations:
DiverseTypes 463
Chapter26:UsingManagementGamesforExecutiveTraining 487
AppendixI:FutureandPresentValueTables 505
AppendixII:StatisticalTable 511
GlossaryofBudgetingandPlanningTerms 513
Index 531
About the Authors
Jae K. Shim is a professor of accounting and finance at California State
University, Long Beach and CEO of Delta Consulting Company, a financial
consulting and training firm. Dr. Shim received his MBA and PhD degrees
from the University of California at Berkeley (Haas School of Business).
Dr. Shim has been a consultant to commercial and nonprofit organizations
for more than 30 years.
Dr. Shim has more than 50 college and professional books to his credit,
including Managerial Accounting, Barron’s Accounting Handbook, Barron’s
Dictionary of Accounting Terms, 2012 GAAP, Encyclopedic Dictionary of
AccountingandFinance,2011–2012CorporateController’sHandbookofFinan-
cial Management, U.S. Master Finance Guide, Dictionary of Personal Finance,
Investment Sourcebook, Dictionary of Real Estate, Dictionary of International
InvestmentTerms,DictionaryofBusinessTerms,TheVest-PocketCPA,TheVest-
Pocket CFO, and the best-selling The Vest-Pocket MBA.
Thirty of his publications have been translated into foreign languages
such as Chinese, Spanish, Russian, Polish, Croatian, Italian, Japanese, and
Korean. Professor Shim’s books have been published by Thomson-Reuters,
John Wiley & Sons, McGraw-Hill, Barron’s, CCH, Prentice-Hall, American
Management Association (AMACOM), and the American Institute of CPAs
(AICPA).
Dr. Shim has been frequently quoted by such media as the Los Angeles
Times,OrangeCountyRegister,BusinessStart-Ups,PersonalFinance,andMoney
Radio. Dr. Shim has also published numerous articles in professional and
academicjournals.HewastherecipientoftheFinancialManagementAssoci-
ationInternational’s1982CreditResearchFoundationAwardforhisarticleon
cash flow forecasting and financial modeling.
JoelG.Siegel,PhD,CPA,isafinancialconsultantandprofessorofaccounting
and finance at Queens College of the City University of New York.
xi
xii & AbouttheAuthors
He was previously employed by Coopers and Lybrand, CPAs, and Arthur
Andersen, CPAs. Dr. Siegel has acted as a consultant to many organizations,
including Citicorp, International Telephone and Telegraph, United Technolo-
gies, American Institute of CPAs, and Person-Wolinsky Associates.
Dr. Siegel is the author of 67 books and about 300 articles on account-
ing and financial topics. His books have been published by Prentice Hall,
McGraw-Hill, HarperCollins, John Wiley & Sons, Macmillan, International
Publishing,Barron’s,Southwestern,Aspen,RichardIrwin,Probus,American
Management Association, and the American Institute of CPAs.
Dr.Siegel’sarticleshavebeenpublishedinmanyaccountingandfinancial
journals,includingFinancialExecutive,FinancialAnalystsJournal,CPAJournal,
Practical Accountant, and the National Public Accountant.
In 1972, he was the recipient of the Outstanding Educator of America
Award. Dr. Siegel is listed in Who’s Where among Writers and Who’s Who in
the World. His international reputation led to his appointment in 1992 as
chairperson of the National Oversight Board.
AllisonI.ShimisCFOofDeltaConsultingCompany.Sheisafinanceexpert
and a PhD candidate at the University of California, Irvine.