ACG4341 Chapter 6 Review

Question 1

Budgeting

Answer 1

A numerical representation of a future plan of action by management for a determined time period and helps managers coordinate actions to implement the plan
Benefits: promotes coordination, communication among subunits within a company
allows lower-level managers to participate in budgeting process
motivates employees
provides a framework for judging performance and facilitating learning
Senior managers spend 10-20% on making budgets; financial planning departments spend 50%

Question 2

Multinational companies

Answer 2

The manager may earn or incur expenses from different countries in different currencies, should not ignore the political, legal, tax, and economic environment of a foreign country when planning, preparing, and implementing budgets, and can use results of a budget to evaluate the performance of a regional manager.

Question 3

Budgetary slack

Answer 3

Practice of underestimating budgeted revenues or overestimated budgeted costs to make budgeted targets easier to achieve

Question 4

Kaizen budgeting

Answer 4

Continuous improvement the manager anticipates during the budgeted period into budgeted numbers

Question 5

Variances

Answer 5

Differences between budgeted and actual results

Question 6

Stretch target

Answer 6

Used to achieve higher levels of performance through psychological motivation

Question 7

Calculate COGS to be reported

Answer 7

Ending finished goods inventory + COGS manufactured - beginning finished goods inventory

Question 8

Master budget

Answer 8

Working document managers may use at the core of the ongoing budget-related process

Question 9

Rolling/continuous budget

Answer 9

Allows managers to update information to accommodate changes to cost and revenue changes by adding a month quarter, or year after the end of a period; always available for a specified future period

Question 10

Financial budget

Answer 10

Allows managers to concentrate on the cash effects of operations and planned capital outlays

Question 11

Operating budget

Answer 11

Consists of budgeted income statement and support budgets

Question 12

Production budget

Answer 12

Prepared directly after revenues budget. After production budget is direct materials budget, budgeted income statement, and manufacturing overhead budget

Question 13

Cash budget

Answer 13

Key component of master budget that includes schedule of expected cash receipts and cash disbursements

Question 14

Controllability

Answer 14

Degree of influence a manager has over costs, revenues, or related items for which they are responsible for

Question 15

Responsibility accounting

Answer 15

More expanded and focuses on gaining information, knowledge, and control

Question 16

Sensitivity analysis

Answer 16

A what-if technique that examines how a result will change if the original predicted data are not achieved or if an underlying assumption changes

Question 17

Financial planning model

Answer 17

Defined as mathematical representations of the relationships among operating activities, financing activities, and other factors that affect the master budget

Question 18

Calculate sales revenue on budgeted income statement

Answer 18

Budgeted unit sales * selling price per unit

Question 19

Investment center

Answer 19

Based on investments, revenues, and costs of a department

Question 20

Profit center

Answer 20

Controls revenues and costs

Question 21

Revenue center

Answer 21

Controls only revenues

Question 22

Cost center

Answer 22

Controls only costs

Question 23

Motive for creating a budget

Answer 23

Guides a manager in choosing a period for the budget

Question 24

Calculate number of finished goods in units

Answer 24

Budgeted unit sales + target ending finished goods inventory - beginning finished goods inventory