This article was downloaded by: [The Aga Khan University]

On: 03 January 2015, At: 05:14

Publisher: Taylor & Francis
Informa Ltd Registered in England and Wales Registered Number: 1072954 Registered office: Mortimer
House, 37-41 Mortimer Street, London W1T 3JH, UK

Production Planning & Control: The Management

of Operations
Publication details, including instructions for authors and subscription
information:
http://www.tandfonline.com/loi/tppc20

Incorporating production planning in business

planning: A linked spreadsheet approach
Ying I. Chien & Wayne H. J. Cunningham
Published online: 15 Nov 2010.

To cite this article: Ying I. Chien & Wayne H. J. Cunningham (2000) Incorporating production planning in business
planning: A linked spreadsheet approach, Production Planning & Control: The Management of Operations, 11:3,
299-307, DOI: 10.1080/095372800232261

To link to this article: http://dx.doi.org/10.1080/095372800232261

PLEASE SCROLL DOWN FOR ARTICLE

Taylor & Francis makes every effort to ensure the accuracy of all the information (the “Content”)
contained in the publications on our platform. However, Taylor & Francis, our agents, and our licensors
make no representations or warranties whatsoever as to the accuracy, completeness, or suitability
for any purpose of the Content. Any opinions and views expressed in this publication are the opinions
and views of the authors, and are not the views of or endorsed by Taylor & Francis. The accuracy of
the Content should not be relied upon and should be independently verified with primary sources
of information. Taylor and Francis shall not be liable for any losses, actions, claims, proceedings,
demands, costs, expenses, damages, and other liabilities whatsoever or howsoever caused arising
directly or indirectly in connection with, in relation to or arising out of the use of the Content.

This article may be used for research, teaching, and private study purposes. Any substantial or
systematic reproduction, redistribution, reselling, loan, sub-licensing, systematic supply, or distribution
in any form to anyone is expressly forbidden. Terms & Conditions of access and use can be found at
http://www.tandfonline.com/page/terms-and-conditions
 PRODUCTION PLANNING & CONTROL, 2000, VOL. 11, NO. 3, 299 ± 307

Incorporating production planning in business

planning: a linked spreadsheet approach
YING I. CHIEN and WAYNE H. J. CUNNINGHAM

Keywords sales forecasting, production planning, cash and make a pro® t. To develop a good business plan,
Downloaded by [The Aga Khan University] at 05:14 03 January 2015

budgeting managers cannot formulate their individual operating

Abstract. Sales forecasting, aggregate production planning
and cash budgeting are three functions which must be per-
formed for ® rms to succeed in today’s marketplace. Frequently,
however, coordinating these activities is di cult because critical
information may not be easily shared. This paper presents a
means whereby the three planning activities can be integrated
through the use of spreadsheet linking procedures. Doing so
provides the opportunity for managers to share information in
developing plans for better decisions.
1. Scope and purpose
As the world of business becomes increasingly more
competitive, business managers are constantly seeking
ways to improve the management of resources to survive
plans in a vacuum. Integrating planning information
derived from various functions in the ® rm is key to the
development of an e€ ective business plan. In business
planning it is essential to recognize and understand the
interrelationships among various planning functions in
marketing/sales, production and ® nance. Such integra-
tion provides accurate information for coordinated devel-
opment of the plans. Information on expected sales
revenues, production levels, production workforce size,
inventory levels, and cash requirements for workforce
and materials is indispensable for the e€ ective coordina-
tion of these three major planning functions. Without
coordination , it is di cult to assure that the plans work
in concert to achieve the objectives of the overall business
plan of the ® rm.

A uthors: Y. I. Chien and W. H. J. Cunningham, Operations and Information Management

Department, University of Scranton, Scranton, PA 18510-4602 , USA. e-mail: chien@uofs.edu
Y ING I . C HIEN is Associate Professor, Department of Operations and Information Management,
The Arthur J. Kania School of Management, University of Scranton. His teaching and research
are in the areas of operations management, production planning and control, applied management
science, spreadsheet applications in operations management, and integrated production and ® nan-
cial planning. Dr Chien has published and presented research papers in spreadsheet applications in
management science and operations management. He is a member of the American Production
and Inventory Control Society and academic advisor of the undergraduate operations manage-
ment programme at the University of Scranton.

W A Y NE CUNNINGHAM is Associate Professor of Operations Management, and Director of the

Master of Business Administration Programme at The Arthur J. Kania School of Management
at the University of Scranton. His current teaching interests are in operations management, world
class manufacturing, manufacturing strategy, productivity management and logistics. Dr
Cunningham’s research interests are in the development of spreadsheet applications for business
decision-making, manufacturing improvement, productivity and third-party logistics strategies. He
has consulted for a number of ® rms in such areas as strategic planning, facility location, order
processing, market planning and customer service. He is also interested in developing innovative
alternative means to deliver graduate business education. Dr Cunningham has published papers in
spreadsheet applications to business problems and business education, and logistics and related
® elds.

Production Planning & Control ISSN 0953± 7287 print/ISSN 1366± 5871 online © 2000 Taylor & Francis Ltd
http://www.tandf.co.uk/journals/tf/09537287.html
 300 Y . I. Chien and W. H. J . Cunning ham
Aggregate production planning is concerned with the
process of determining aggregate levels of production for
a number of time periods (monthly or quarterly) in the
medium-range horizon (typically the next 12± 24
months) . Decisions on long-range changes in capacity,
e.g. new plant and equipment, are not considered in
this planning horizon because these decisions generally
require longer lead times. Within the upper limit of the
® xed capacity, the production capacity of the ® rm can be
adjusted during the medium-range planning horizon by
varying such factors as workforce size, workforce utiliza-
tion, product family inventory and the use of subcontrac-
tors. The objectives of aggregate production planning are
then to: (i) develop ¯ exible and optimal (if achievable)
plans which satisfy the expected aggregate demand for
the ® rm’ s products; and (ii) ensure that resources are
Downloaded by [The Aga Khan University] at 05:14 03 January 2015
used e€ ectively and that costs are kept as low as possible.
It is important to note that aggregate demand forecasts
and sales plans provide the critical demand component of
the aggregate production plan.
Cash budgeting, an important ® nancial planning
activity, shows the projected cash in¯ ows and out¯ ows
over some speci® ed period of time. Generally, ® rms use a
monthly cash budget to make ® nancial forecasts for the
next six± 12 months, plus a more detailed daily or weekly
cash budget for the coming month. The cash budget can,
therefore, pinpoint the ® rm’s cash position in each per-
iod. From the planning horizon perspective , aggregate
production planning and cash budgets are very similar
in the sense that both deal with business planning in the
medium term.
The intent of this paper is to present a means of inte-
grating sales forecasts/sales plans, aggregate production
planning (a medium-range production plan) and cash
budgeting through the use of microcomputer-base d
spreadsheet technology.
2. A pproach
The integrated planning system includes three di€ er-
ent spreadsheet modules: sales forecasting, aggregate pro-
duction planning and cash budgeting. These three
modules are stand-alone spreadsheet templates, which
are linked through spreadsheet ® le-linking procedures.
The layout of each module and its sample template
using EX CEL is described below.
3. The integrated spreadsheet modules
3.1. Sales forecasting module ( SFM )
The example template for the sales forecasting module
adopts the classical time series decomposition method to
forecast sales (in units) of an aggregate product, i.e. a
product family. These forecast sales units are transmitted
to the aggregate production planning module for devel-
oping production plans. The layout of this module is
illustrated with the example in table 1. It can be easily
adjusted for di€ erent time horizons.
Table 1 consists of three sections. Section 1 of the
spreadsheet (rows 1± 39) is for data entries and calcula-
tions of monthly sales averages, seasonal indexes and
deseasonalized sales. Section 2 (rows 40± 55) displays
the regression output for trend analysis. Section 3 (rows
57± 67) is reserved for sales forecasts calculations. These
sales forecasts may be adjusted by marketing or sales
managers in accordance with speci® c sales plans. For ex-
ample, the marketing manager can modify the forecasts if
speci® c sales promotions, price changes or new market
entries are planned.
3.2. Aggregate production planning module ( APPM )
The APPM may include various alternative aggregate
production plans for consideration. For illustration, three
plans are presented in the example template shown in
table 2. These plans are: (i) a constant workforce, short-
age ® lled by backorders; (ii) a constant workforce, short-
age ® lled by overtime; and (iii) a variable workforce
plan. This module allows the operations manager to ex-
amine overall costs of the production plans being com-
pared to help determine the `best’ plan acceptable to the
® rm. Individual cost categories, e.g. inventory costs,
overtime costs, etc. as well as other issues of interest
(e.g. workforce levels, overtime requirements) can also
be investigated.
The preliminary information necessary to permit com-
parison of the various production plans is shown in rows
1± 10. This is followed by a large section (rows 12± 83) for
modelling and analysing the three alternative plans.
Aggregate demand and sales prices in each month of
the planning horizon are obtained from SFM. In
EX CEL, e.g. this is accomplished by using the `copy
and paste link’ commands to link the range of cells
which give seasonalized forecasts and sales prices to
each of the three production plans.
Rows 85± 96 are reserved for cost comparisons of the
three plans. The operations manager can compare the
costs by category, the total costs of the three plans, and
other factors, e.g. an objective of stable employment
before the desired plan is selected. In the example, the
least total cost plan is selected. Should the manager want
to choose one of the other plans, all that needs to be done
is to indicate the number of the selected plan.
The last part of this module template (rows 98± 107 ) is
a special transmittal table. It contains the cost informa-
 Downloaded by [The Aga Khan University] at 05:14 03 January 2015

Table 1. Sales forecasting module.

A B C D E F G
1 Demand Monthly Seasonal Deseasonalized
2 Year Month (units) average index sales Time

3 1 1 4180 4327 0.94 4468 1

4 2 4800 4907 1.06 4524 2
5 3 4910 5007 1.08 4535 3
6 4 4340 4459 0.96 4502 4
7 5 4195 4346 0.94 4465 5
8 6 4430 4617 1.00 4438 6
9 7 4610 4768 1.03 4472 7
10 8 4705 4952 1.07 4395 8
11 9 4430 4697 1.02 4363 9
12 10 4200 4468 0.97 4348 10
13 11 4060 4338 0.94 4329 11
14 12 4170 4616 1.00 4178 12
15 2 1 4310 0.94 4607 13
16 2 4910 1.06 4628 14
17 3 5010 1.08 4628 15
18 4 4390 0.96 4553 16
19 5 4283 0.94 4558 17
20 6 4561 1.00 4569 18
21 7 4685 1.03 4544 19
22 8 4940 1.07 4614 20
23 9 4650 1.02 4579 21
24 10 4345 0.97 4498 22
25 11 4205 0.94 4483 23
26 12 4465 1.00 4474 24
27 3 1 4490 0.94 4800 25
Incorporating production planning in business planning

28 2 5012 1.06 4724 26

29 3 5102 1.08 4713 27
30 4 4648 0.96 4821 28
31 5 4560 0.94 4853 29
32 6 4861 1.00 4869 30
33 7 5010 1.03 4860 31
34 8 5210 1.07 4867 32
35 9 5010 1.02 4934 33
36 10 4860 0.97 5031 34
37 11 4750 0.94 5064 35
38 12 5213 1.00 5223 36
39 4625 overall average
continued
301
 Downloaded by [The Aga Khan University] at 05:14 03 January 2015

302

T able 1 continued

40 Summary output
41 Regression statistics
42 Multiple R 0.82
43 R Square 0.67
44 Adjusted R square 0.66
45 Standard error 133.89
46 Observations 36.00
47 ANOVA
48 df SS MS F SigniŽ cance
49 Regression 1.00 1 222 513.97 1 222 513.97 68.20 0.00
50 Residual 34.00 609 497.92 17 926.41
51 Total 35.00 1 832 011.88
52
53 Coe cients Standard Error t-State P-value Lower 95% Upper 95% Lower 95.0% Upper 95.0%
54 Intercept 4297.10 45.58 94.28 0.00 4204.48 4389.73 4204.48 4389.73
55 X variable 17.74 2.15 8.26 0.00 13.37 22.10 13.37 22.10
56
57 Sales Forecasts:
58 Year 4
59 Month 1 2 3 4 5 6 7 8 9 10 11 12
60 Time 37 38 39 40 41 42 43 44 45 46 47 48
Y . I. Chien and W. H. J . Cunning ham

61 Trend
62 forecasts 4953 4971 4989 5007 5024 5042 5060 5078 5095 5113 5131 5149
63 Seasonal
64 index 0.94 1.06 1.08 0.96 0.94 1.00 1.03 1.07 1.02 0.97 0.94 1.00
65 Seasonalized
66 forecast (units) 4634 5274 5401 4827 4721 5033 5216 5436 5174 4940 4813 5138
67 Sales price ($) 140 140 140 140 140 140 140 140 140 140 140 140
 Downloaded by [The Aga Khan University] at 05:14 03 January 2015

Table 2. Aggregate production planning module.

A B C D E F G H I J K L M N

1 Preliminary information
2 Workforce and inventory Costs
3 Current # of workers 50 $10.00 Hourly wage rate
4 Labour hours/unit 2.0 15.00 Overtime cost/hour
5 Production rate (units/day/worker) 4.0 1.00 Inventory carrying cost/unit/period
6 Beginning inventory (units) 100 3.00 Backorder or shortage cost/unit/period
7 Target ending inventory (units) 110 300.00 Hiring cost/worker
8 (end of planning horizon) 200.00 Layo€ cost/worker
9 Overtime limit 26 10.00 Material cost/unit
10 (% of regular output)
11
12 Plan 1: Constant workforce, shortage ® lled by backordering
13 Month 1 2 3 4 5 6 7 8 9 10 11 12 Total
14 Demand 4634 5274 5401 4827 4721 5033 5216 5436 5174 4940 4813 5138 60 607
15 Work days 23 20 21 22 23 20 23 22 21 23 21 22 261
16 # of workers 58.06 58.06 58.06 58.06 58.06 58.06 58.06 58.06 58.06 58.06 58.06 58.06 697
17 # of workers (rounded) 59 59 59 59 59 59 59 59 59 59 59 59 708
18 Regular output 5428 4720 4956 5192 5428 4720 5428 5192 4956 5428 4956 5192 61 596
19 O.T. units 0 0 0 0 0 0 0 0 0 0 0 0 0
20 Begin inv. 100 894 340 (105) 260 967 653 865 621 403 891 1035 6925
21 End inv. 894 240 (105) 260 967 653 865 621 403 891 1035 1089 7914
22 Sales (units) 4634 5274 5296 4932 4721 5033 5216 5436 5174 4940 4813 5138
23 Sales price ($) 140 140 140 140 140 140 140 140 140 140 140 140
24 Sales revenue ($) 648 711 738 408 741 441 690 488 660 944 704 688 730 294 761 031 724 361 691 545 673 755 719 355
25 Cost analysis
Incorporating production planning in business planning

26 Month 1 2 3 4 5 6 7 8 9 10 11 12 Total
27 Work force change 9 0 0 0 0 0 0 0 0 0 0 0 9
28 Hire cost 2700 0 0 0 0 0 0 0 0 0 0 0 2700
29 Layo€ cost 0 0 0 0 0 0 0 0 0 0 0 0 0
30 Regular wages 108 560 94 400 99 120 103 840 108 560 94 400 108 560 103 840 99 120 108 560 99 120 103 840 1 231 920
31 O.T. cost 0 0 0 0 0 0 0 0 0 0 0 0 0
32 Inv. holding cost 894 340 0 260 967 653 865 621 403 891 1035 1089 8019
33 Short cost 0 0 315 0 0 0 0 0 0 0 0 0 315
34 Material cost 54 280 47 200 49 560 51 920 54 280 47 200 54 280 51 920 49 560 54 280 49 560 51 920 615 960
35 Period total 166 434 141 940 148 995 156 020 163 807 142 253 163 705 156 381 149 083 163 731 149 715 156 849 1 858 914
continued
303
 Downloaded by [The Aga Khan University] at 05:14 03 January 2015

304

T able 2 continued

1 2 3 4 5 6 7 8 9 10 11 12 Total

36 Plan 2: Constant workforce, shortages ® lled by overtime

37 Month 1 2 3 4 5 6 7 8 9 10 11 12 Total
38 Demand 4634 5274 5401 4827 4721 5033 5216 5436 5174 4940 4813 5138 60 607
39 Work days 23 20 21 22 23 20 23 22 21 23 21 22 261
40 # of workers 58.06 58.06 58.06 58.06 58.06 58.06 58.06 58.06 58.06 58.06 58.06 58.06 697
41 # of workers (rounded) 59 59 59 59 59 59 59 59 59 59 59 59 708
42 Regular output 5428 4720 4956 5192 5428 4720 5428 5192 4956 5428 4956 5192 61 596
43 O.T. units 0 0 105 0 0 0 0 0 0 0 0 0 105
44 Begin inv. 100 894 340 0 365 1072 758 970 726 508 997 1140 7870
45 End inv. 894 340 0 365 1072 758 970 726 508 997 1140 1194 8964
46 Sales (units) 4634 5274 5401 4827 4721 5033 5216 5436 5174 4940 4813 5138
47 Sales price ($) 140 140 140 140 140 140 140 140 140 140 140 140
48 Sales revenue ($) 648 711 738 408 756 143 675 786 660 944 704 688 730 294 761 031 724 361 691 545 673 755 719 355

49 Cost analysis
50 Month 1 2 3 4 5 6 7 8 9 10 11 12 Total
51 Workforce change 9 0 0 0 0 0 0 0 0 0 0 0 9
52 Hire cost 2700 0 0 0 0 0 0 0 0 0 0 0 2700
53 Layo€ cost 0 0 0 0 0 0 0 0 0 0 0 0 0
54 Regular wages 108 560 94 400 99 120 103 840 108 560 94 400 108 560 103 840 99 120 108 560 99 120 103 840 1 231 920
55 O. T. cost 0 0 3150 0 0 0 0 0 0 0 0 0 3150
56 Inv. holding cost 894 340 0 365 1072 758 970 726 508 997 1140 1194 8964
57 Short cost 0 0 0 0 0 0 0 0 0 0 0 0 0
58 Material cost 54 280 47 200 50 610 51 920 54 280 47 200 54 280 51 920 49 560 54 280 49 560 51 920 617 010
59 Period total 166 434 141 940 152 881 156 125 163 912 142 358 163 810 156 486 149 188 163 837 149 820 156 954 1 863 745
Y . I. Chien and W. H. J . Cunning ham

60 Plan 3: Variable workforce

61 Month 1 2 3 4 5 6 7 8 9 10 11 12 Total
62 Demand 4634 5274 5401 4827 4721 5033 5216 5436 5174 4940 4813 5138 60 607
63 Work days 23 20 21 22 23 20 23 22 21 23 21 22 261
64 # of workers 49.28 65.10 63.44 54.32 50.66 63.91 56.62 61.37 60.94 53.64 56.89 58.29 694
65 # of workers (rounded) 50 66 64 55 51 64 57 62 61 54 57 59 700
66 Regular output 4600 5280 5376 4840 4692 5120 5244 5456 5124 4968 4788 5192 60 680
67 O.T. units 0 0 0 0 0 0 0 0 0 0 0 0 0
68 Begin inv. 100 66 72 47 60 31 117 145 165 115 143 119 1181
69 End inv. 66 72 47 60 31 117 145 165 115 143 119 173 1254
70 Sales (units) 4634 5274 5401 4827 4721 5033 5216 5436 5174 4940 4813 5138
71 Sales price ($) 140 140 140 140 140 140 140 140 140 140 140 140
72 Sales revenue ($) 648 711 738 408 756 143 675 786 660 944 704 688 730 294 761 361 724 361 691 545 673 755 719 355
continued
 Downloaded by [The Aga Khan University] at 05:14 03 January 2015

T able 2 continued

73 Cost analysis
74 Month 1 2 3 4 5 6 7 8 9 10 11 12 Total
75 Workforce change 0 16 (2 ) (9 ) ( 4) 13 (7 ) 5 (1 ) ( 7) 3 2 9
76 Hire cost 0 4800 0 0 0 3900 0 1500 0 0 900 600 11 700
77 Layo€ cost 0 0 400 1800 800 0 1400 0 200 1400 0 0 6000
78 Regular wages 92 000 105 600 107 520 96 800 93 840 102 400 104 880 109 120 102 480 99 360 95 760 103 840 1 213 600
79 O.T. costs 0 0 0 0 0 0 0 0 0 0 0 0 0
80 Inv. holding cost 66 72 47 60 31 117 145 165 115 143 119 173 1254
81 Short cost 0 0 0 0 0 0 0 0 0 0 0 0 0
82 Material cost 46 000 52 800 53 760 48 400 46 920 51 200 52 440 54 560 51 240 49 680 47 880 51 920 606 800
83 Period total 138 066 163 272 161 727 147 060 141 591 157 617 158 865 165 345 154 035 150 583 144 659 156 533 1 839 354

85 Cost Comparison
86 Plan 1 2 3
87 Hire cost 2700 2700 11 700
88 Layo€ cost 0 0 6000
89 Regular wages 1 231 920 1 231 920 1 213 600
90 O.T. cost 0 3150 0
91 Inv. holding cost 8019 8964 1254
92 Short cost 315 0 0
93 Material cost 615 960 617 010 606 800
94 Total 1 858 914 1 863 745 1 839 354
95 min
96 Type selected plan number (1, 2 or 3) 3
97
Incorporating production planning in business planning

98 Transmittal table (cost and revenue information of the least cost plan)
99 Month 1 2 3 4 5 6 7 8 9 10 11 12 Total
100 Hire cost 0 4800 0 0 0 3900 0 1500 0 0 900 600 11 700
101 Layo€ cost 0 0 400 1800 800 0 1400 0 200 1400 0 0 6000
102 Regular wages 92 000 105 600 107 520 96 800 93 840 102 400 104 880 109 120 102 480 99 360 95 760 103 840 1 213 600
102 O.T. cost 0 0 0 0 0 0 0 0 0 0 0 0 0
104 Inv. holding cost 66 72 47 60 31 117 145 165 115 143 119 173 1254
105 Short cost 0 0 0 0 0 0 0 0 0 0 0 0 0
106 Material cost 46 000 52 800 53 760 48 400 46 920 51 200 52 440 54 560 51 240 49 680 47 880 51 920 606 800
107 Sales revenue 648 711 738 408 756 143 675 786 660 944 704 688 730 294 761 031 724 361 691 545 673 755 719 255
305
 Downloaded by [The Aga Khan University] at 05:14 03 January 2015

Table 3. Cash budgeting module

306

A B C D E F G H I J K L M N O

1 Preliminary information
2 Before-tax return on surplus funds 6.00%
3 Before-tax cost of loans outstanding 10.00% Monthly expenses:
4 Collections: Gen. & adm. salaries $300 000
5 Discount allowed for sale month 1% Lease payment $100 000
6 Misc. expenses $90 000
7 Sale month (take disc. ) 15% Tax rate 30.00%
8 Month following sale 80% Initial cash $235 000
9 Second month following sale 5% Min. cash balance $300 000

10 Year 3 4
11 Month 11 12 1 2 3 4 5 6 7 8 9 10 11 12
12 Sales revenue 689 243 760 235 648 711 738 408 756 143 675 786 660 944 704 688 730 294 761 031 724 361 691 545 673 755 719 355
13 Collections:
14 Month of sale 102 353 112 895 96 334 109 654 112 287 100 354 98 150 104 646 108 449 113 013 107 568 102 694 100 053 106 824
15 1 month after sale 551 394 608 188 518 969 590 726 604 915 540 629 528 755 563 750 584 235 608 825 579 489 553 236 539 004
16 2 months after sale 34 462 38 012 32 436 36 920 37 807 33 789 33 047 35 234 36 515 38 052 36 218 34 577
17 Total collections 738 984 666 634 735 449 742 189 676 586 667 191 705 246 732 482 752 907 720 235 689 506 680 405
18 After-tax return on surplus funds 0 161 0 0 11 0 0 0 0 0 0 0
19 Total cash receipts 738 984 666 795 735 449 742 189 676 597 667 191 705 246 732 482 752 907 720 235 689 506 680 405

20 Cash payments:
21 Hire cost 0 4800 0 0 0 3900 0 1500 0 0 900 600
22 Layo€ cost 0 0 400 1800 800 0 1400 0 200 1400 0 0
23 Regular wages 92 000 105 600 107 520 96 800 93 840 102 400 104 880 109120 102 480 99 360 95 760 103 840
24 O.T. cost 0 0 0 0 0 0 0 0 0 0 0 0
25 Inv. holding cost 66 72 47 60 31 117 145 165 115 143 119 173
Y . I. Chien and W. H. J . Cunning ham

26 Short cost 0 0 0 0 0 0 0 0 0 0 0 0
27 Material 46 000 52 800 53 760 48 400 46 920 51 200 52 440 54 560 51 240 49 680 47 880 51 920
28 Administrative salaries 300 000 300 000 300 000 300 000 300 000 300 000 300 000 300 000 300 000 300 000 300 000 300 000
29 Lease payment 100 000 100 000 100 000 100 000 100 000 100 000 100 000 100 000 100 000 100 000 100 000 100 000
30 Misc. expenses 90 000 90 000 90 000 90 000 90 000 90 000 90 000 90 000 90 000 90 000 90 000 90 000
31 Interest pd on bonds 0 0 0 90 000 0 0 0 0 90 000 0 0 0
32 Income taxes 0 0 80 000 0 0 80 000 0 0 80 000 0 0 80 000
33 Dividends paid 0 75 000 0 0 75 000 0 0 75 000 0 0 75 000 0
34 After-tax int. on loans outstanding 0 0 91 70 0 157 510 184 173 530 69 187
35 Total cash payments 628 066 728 272 731 818 727 130 706 591 727 774 649 375 730 529 814 208 641 114 709 728 726 720

36 Net cash gain (loss) for month 110 917 (61 477) 3631 15 060 (29 994) (60 583) 55 871 1963 (61 301) 79 121 (20 221) (46 314)
37 Cash at beg. of month w/o borrowing 235 000 345 917 284 441 288 072 303 131 273 137 212 554 268 425 270 378 209 077 288 198 267 977
38 Cumulative cash w/o borrowing 345 917 284 441 288 072 303 131 273 137 212 554 268 425 270 378 209 077 288 198 267 977 221 662
39 Less: minimum cash balance 300 000 300 000 300 000 300 000 300 000 300 000 300 000 300 000 300 000 300 000 300 000 300 000
40 Tot. loans out. to maint. target 0 (15 559) (11 928) 0 (26 863) (87 446 ) (31 575) (29 622) (90 923) (11 802) (32 023) (78 338)
41 Surplus cash 45 917 0 0 3131 0 0 0 0 0 0 0 0
 Incorporating production planning in business planning
tion and sales revenue of the selected production plan.
Detailed costs and sales revenue are transmitted to the
cash budgeting module using the ® le-linking procedure.
3.3. Cash budgeting module ( CBM )
The structure of the CBM template mirrors the frame-
work of the cash budget spreadsheet in Brigham et al.
(1988 ) . It receives forecast sales revenues and detailed
costs of the adopted production plan from the APPM
through the ® le-linking procedure. It then forecasts
in¯ ows and out¯ ows of cash within the ® rm over the
same planning horizon as that of the production plan.
It predicts the timing and amount of funds that the
® rm needs to borrow to support the sales plan and pro-
Downloaded by [The Aga Khan University] at 05:14 03 January 2015
duction plan. The layout of CBM is presented in table 3.
The CBM module consists of two parts. The ® rst part
(rows 1± 9) is used to present preliminary ® nancial infor-
mation, which is part of the inputs as predetermined by
the ® nancial manager. Should the manager wish to
change any of these inputs, the changes can be made in
the preliminary section. The second part (rows 10± 41) of
the CBM template contains the following ® nancial infor-
mation: (i) total cash receipts from returns on surplus
funds and collections of sales revenues derived from the
transmittal table in the aggregate production planning
module, (ii) total cash payments including those trans-
ferred from the transmittal table in the aggregate produc-
tion planning module and other predetermined
payments; and (iii) monthly cash surplus or shortages.
307
4. Summary and conclusion
This paper presents a spreadsheet-base d system of link-
ing the sales forecast/sales plan, production plan and
® nancial plan. The integration of planning information
in these three major management functions is essential for
e€ ective business planning. The system can be used as a
simulation model to examine various alternative strate-
gies in developing an integrated business plan.
Because of its simplicity and ¯ exibility, the system can
be easily adapted for application in business. It can also
be used as educational material in academics and busi-
ness to demonstrate the integration of the three planning
functions.
References
BRIGHA M, E. F., A B ERW A LD, D. A., and BA LL , S. E., 1988,
Finance with Lotus 1-2-3: T ext, Cases, and M odels (New York:
Dryden Press) , pp. 284 ± 287.
BRIGHA M, E. F., 1993, Essentials of M anagerial Finance (New
York: Dryden Press) .
C HA SE , R. B., and A QUIL A NO, N. J ., 1995, Production and
Operations M anagement (Homewood, IL: Richard D. Irwin) .
GA ITHER , N., 1996, Production and Operations M anagement (New
York: Dryden Press) .
SA MUEL , E., 1975, Five approaches to aggregate production.
A IIE T ransactions, 7, 118 ± 131.
SHA FER, S. M ., 1991, A spreadsheet approach to aggregate
scheduling. Production and Inventory M anag ement J ournal, 32,
4± 10.