B4 Flashcards
What is the difference between a master budget and a flexible budget?
master budget - based on one production level
flexible budget - reflects any production level within a relevant range; budgeted amounts are adjusted for the actual level of activity (units of output)
What is a static budget?
budgeted costs for budgeted output
(they are not based on or adjusted for actual performance)
What is the first and last type of budget that should be created?
first = sales (sales volume comes first, then price of sales, price of products for inventory, etc.)
last = cash (derived from accrual basis assumptions) and financial budgets including pro forma FS; cash flow statement is the last pro forma FS to be created
note: the budgeted income statement needs to be done before the budgeted balance sheet
note: the cash budget needs to be done before the budgeted balance sheet (the budgeted I/S can be done before the cash budget)
What is the formula for budgeted production?
budgeted sales purchases + desired ending inventory - beginning inventory
note: for beginning inventory, sometimes you’ll need to take a % x the budgeted sales of the current month
What is the 3 step process to calculate a direct materials budget?
- sales for the year in units + FG ending inventory - FG beginning inventory = production units
- production units + DM ending inventory - DM beginning inventory = units of DM to purchase
- units of DM to purchase x cost per unit
What is the purpose of preparing a cash budget?
to invest excess cash and minimize the need for interim financing (if you run out of cash)
What is the difference between a flexible and a static budget?
flexible budget - provides cost allowances for different levels of activity
static budget - provides cost allowances for one level of activity
When production levels increase, what happens to fixed and variable costs per unit?
-fixed costs decrease per unit
-variable costs per unit remain constant (but total variable costs increase based on the volume)
What is a simple way of explaining a flexible budget?
the actual output x static budget amounts per unit
What is the formula for operating cycle?
days in inventory + days in accounts receivable
How do you know what the primary cost driver is?
the B/S or I/S account with the higher rate of an increase or decrease compared to the other account in the ratio
What is a true fact about the relevant range?
fixed costs (in total) do not change
note: cost relationships determine when the relevant range will change (not prices)
How would you know how much a company is gaining or losing by getting rid of a division or product line?
avoidable costs - contribution margin
What is the formula for # of units needed to sell with a desired % of profit?
[fixed cost + (% x sales price per unit)] / (sales price - variable costs - sales commission per unit)
How do you calculate the direct labor efficiency variance?
standard rate per hour * (actual hours worked - standard hours allowed)