ACT 4B Exam 3 Flashcards
Participative Budgeting- Advantages
Lower-level managers are closer to the action and should have more detailed knowledge for creating realistic budgets
Managers are more likely to accept, and be motivated by, budgets they help to create
Participative Budgeting-Disadvantages
The budget process can become much more complex and time-consuming as more people participate in the process.
Managers may intentionally build slack into budget by overbudgeting expenses or under budgeting revenue.
Zero-based budgeting
All managers begin with a budget of zero and must justify every dollar they put in the budget.
Benefits of budgeting
promotes coordination and communication, and provides a benchmark for motivating employees and evaluating actual performance.
Operating Budgets
Are the budgets needed to run the daily operations of the company. The operating budgets culminate in a budgeted income statement.
Financial Budgets
Include the captial expenditures budget and the cash budgets. Financial budgets culminate in a budgeted balance sheet.
Master budget
Is the comprehensive planning document for the entire organization. It consists of the financial and operating budgets needed to create the company’s budgeted financial statements.
Sales Budget(Calculations)
Number of Unit Sales X Sales Price Per per Unit= Total Sales Revenue
Tucson Tortilla expects to sell 30,000 cases for tortilla chips in January, at a sales price of $20 per case, so the estimate sales revenue for January is as follows:
30,000 cases X 20 per case = $600,000
Production Budget(Calculations) Let's assume Tucson Tortilla wants to maintain and ending inventory equal to 10% of the next month's expected sales(20,000 cases in February). Thus, the total number of cases needed in January is as follows:
30,000 cases for Jan Sales+ (10%X20,000)= 32,000
30,000X10%=3,000
32,000 cases needed- 3,000 cases in the beginning= 29,000 needed cases to produce.
Cash Collections Budget(Calculations)
Determine Georgio’s budget for Match cash collections assuming credit sales are collected as follows: 90% is collected the month after sale, 8% is collected two months after the month of sale, and 2% is never collected.
March COD SALES: 15,000 February Credit Sales: 110,000 January Credit Sales: 100,000 110,000X90%=99,000 100,000X 8%=8000 99,000+8000+15,000 march COD sales=122000
Tucson Tortilla’s only direct material is masa harina corn flour. Engineering studies show that each case of chips requires five pounds of flour.
The company can purchase the flour, including freight-in and purchase discounts, for $1.50 per pound. Therefore the standard DM cost per case of tortilla chips is calculated as follows:
5lbs X 1.50 = $7.5 per case
Each case of tortilla chips requires only 0.05 hours of direct labor. This time requirement includes allowances for cleanup, breaks, and so forth since employees are paid for that time as well as actual work time. Furthermore, direct laborers are paid $22 per hour, including benefits. The standard DL cost per chip is
0.05 DL hours X $22.000= $1.10 per case
Engineering studies indicate that each case of chips requires 0.10 machine hours to produce. The company expects to produce 400,000 case of chips during the year. Therefore the total allocation base is 40,000 machine hours. At a volume of 400,000 cases, the Company expects total variable overhead to be $1,000,000. The MOH rate is:
1,000,000 / 40,000 machine hours= 25/machine hours
Direct materials price variance
tells managers how much of the total variance is due to paying a higher or lower price than expected for the direct materials it purchase.
