Budgeting Flashcards
Where does budgeting start?
Begins with a sales forecast
The sales forecast expresses planned sales in dollars and in units
The estimate flow forward to the cash budget and the production budget
What is the master budget?
The mast budget is a comprehensive plan for the overall activities of a company
The master budget is developed for a specified level of activity
It is a static budget
What is the flexible budget?
Flexible budget is adjusted when actual sales deviate from the planned sales
This helps analyze actual results by comparing them with expected results at the activity level
When actual results deviate from planned activity, revenues and variable costs are changed to reflect the activity level:
- Revenue is adjusted by multiplying the new quantity times the sales price
- Total variable costs are multiple by the new quantity times the variable cost per unit
- Fixed costs remain the same as long as it stays within the relative range
What is the justification for flexible budgeting?
The company may produce a different budget had they known the actual volume/sold
