Princess Mariejoie V.

Zuñiga FINAMAA
FM181

Module 3: Self-Test Questions

SQ 3-1. Why is planning essential?

➢ Planning is important because it helps the company by being prepared on the
circumstances and problems that might meet in the future because planning includes
proper acquisition and allocation of resources. Planning provides us with a clear
perspective on what needs to be accomplished, what goals need to be reached and how
much time it will be and will be spent about achieving those goals. “Planning is bringing
the future into present so that you can do something about it now.”, this is what Alan
Lakein said.

SQ 3-2. What is corporate planning? What are the 3 levels/forms of corporate planning?
➢ Corporate planning is a formal and systematic process of management, organized
according to responsibility, time and information. It is the making of a strategy to develop
the company in the long term. It includes setting goals for the company as a whole and
for each department thereof, formulation of strategies for achieving their goals, involves
measuring of success and thus tracking plan progress and improving people through
improved decision-making, clearer priorities, greater engagement and recognition of
progress.

➢ The 3 levels/forms of corporate planning are Operational Planning, Project Planning, and
Strategic Planning. (1) Operational planning have a short term planning, refers to the
operation of a part of an organization planning a strategy. A snapshot of what the
department will be focused on in the near future — usually the year ahead. (2) Project
planning identifies cost or expenditure, scope and project schedule. It sets out precisely
what activities and tasks are required, as well as the resources needed, from manpower to
equipment to finance, and where they can be acquired. (3) Strategic Planning gives you a
place to document your mission, vision and principles, your long-term objectives and the
action plans that you will use to achieve them. It is the process of establishing, executing,
and evaluating its impact on the basis of organizational objectives.
SQ 3-3. The financial forecasting process can be broken down into six steps. What are these
steps?
➢ 1st step. Prepare and formulate the sales forecast both in units and amounts.
2nd step. Create production budget such as raw materials, direct labor, and manufacturing
overhead costs.
3rd step. Establish the schedule of operating expenses like selling, administrative, and
other expenses.
4th step. Forecast net income considering the interest and income tax.
5th step. Prepare the cash budget
6th step. Formulate the pro-forma financial statements such as income statement and
balance sheet.

SQ 3-4. Why is the sales forecast the starting point in budgeting?

➢ The sales forecast is the starting point for budgeting because the volume of sales affects
all the company's operating activities and were influenced by external and internal
factors. Sales forecast drive almost every aspect of the firm’s activities.

SQ 3-5. What are pro-forma statements? In what ways are these statements used by
managers?
➢ Pro-forma statements are projected or forecasted income statements and balance sheets
that are used to provide a foundation for the analysis of future profitability and overall
financial performance, and to forecast external funding requirements. There are two
methods are approaches used in constructing pro-forma financial statements: First is the
Percent-of-sales method where this begins with forecasting sales because the sales will be
the basis to express or determine the values of cost of goods sold, operating expenses,
interest expense, and other accounts as a percentage of projected sales; And lastly, the
Judgmental approach where some balance sheet accounts are estimated while others are
calculated and use its external financing as balancing, reflecting additional funds needed
to deal with any shortfall or surplus in financing.