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Strategic Planning > Budgeting And Analysis > Flashcards

Budgeting And Analysis Flashcards

0
Q

What are tactical plans ?

A

Developed to apply to specific circumstances during a specific time frame.

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1
Q

What is operational and tactical planning?

A

The process of determining the specific objectives and means by which strategic plans will be achieved.

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2
Q

What is an annual budget?

A

Translate the strategic plan and implementation into a period specific operational guide.

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3
Q

What is a master budget?

A

Documents specific short term operating performance goals for a period, normally one year or less.

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4
Q

What are operating budgets and what do they include?

A

Established to describe the resources needed and the manner in which those resources will be acquired.
Including- sales & production budget

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5
Q

What are financial budgets?

A

Detail sources and uses of funds to be used in operations

Include: pro forma f/s & cash budgets

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6
Q

What a sales budget?

A

The foundation of the entire budget process. The first budget prepared & drives the development of most other components of the master budget.

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7
Q

What are sales forecasts?

A

Derived from input received from numerous organizational resources, including the options of sales staff, statistical analysis of correlation between sales and economic indicators, and opinions of line management.

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8
Q

What is a production budget?

A

Driven by the sales budget
Made up of the amounts spent for direct labor, direct material, and factory overhead.
The amount of the production budget is based on the amounts of inventory on hand and the inventory necessary to sustain sales

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9
Q

The relationship between production, sales, and inventory levels is displayed in the following formula:

A 
Budgeted sales
\+ desired ending inventory
- beginning inventory
---------------------------
Budgeted production
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10
Q

What is the direct materials purchased budget?

A

The dollar amount of purchases of direct materials required to sustain production requirements

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11
Q

The formula to find the units of direct materials to be purchased for the period is:

A

Units of direct materials needed for a production period
+ desired ending inventory at the end of the period
- beginning inventory at the start of the period
——————————————————————
Units of direct materials to be purchased for the period

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12
Q

How do you calculate the cost of direct material to be purchased?

A

Units of direct material to be purchased for the period
✖ Cost per unit
—————————————————————
Cost of direct materials to be purchased for the period

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13
Q

What is the formula for direct materials usage budget? Aka cost of direct materials used?

A 
Beginning inventory cost
\+ purchases at cost
- ending inventory at cost
--------------------------------
Direct materials usage  (cost or materials used)
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14
Q

What is a direct labor budget?

A

Driven by production

Anticipates the hours and rates associated with workers directly involved in meeting production requirement

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15
Q

What is the formula for direct labor?

A

Budgeted production ( in units)
+ hours( or fraction of hours) required to produce each unit
——————————————————————–
Total number of hours needed
✖ Hourly wage rate
——————————————————————–
Total wages

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16
Q

What is included in factory overhead?

A

Indirect material + indirect labor + “factory” costs

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17
Q

Where is factory overhead applied?

A

To inventory based on a representative statistic (cost driver)

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18
Q

What are the elements of cost of goods manufactured?

A

Direct labor
Direct material
Factory overhead applied

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19
Q

How do you calculate the cost of goods sold on the income statement?

A 
Cost of goods manufactured
\+ beginning finished goods inventory
- ending finished goods inventory
--------------------------------------
Cost of goods sold on income statement
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20
Q

How do you compute the cost of goods manufactured? ** memorize**

A 
Direct materials used
\+ direct labor
\+ factory overhead (variable) applied
\+ factory overhead (fixed) applied
-------------------------------------------
Total cost of goods manufactured
21
Q

What are the three major sections of cash budgets?

A

Cash available
Cash disbursements
Financing (if cash short fall)

22
Q

Cash available (from cash budget) is?

A

Normally associated with both balances available at the beginning of the period and cash collections

  1. Cash balances- cash on hand
  2. Cash collections:
    - cash sales that period
    - collection of A/R
23
Q

What is cash disbursement represent?

A

The cash outlays associated with purchases and with operating expenses.
Purchases-anticipates:
1. Cash purchases for the current period
2. Credit purchases for the current period
3. Cash disbursements required to pay accounts payable during the current period
Operating expenses- salaries, rents, insurance, utilities ( not depreciation)

24
Q

What do financing budgets consider?

A

The manner in which operating (line of credit) financing will be used to maintain minimum cash balances or the manner in which excess or idle cash will be invested to ensure both liquidity and adequate returns

25
Q

Cash budgets consider what?

A

Beginning cash
+Cash collections from sales
-cash disbursements for purchases and operating expenses
Computed ending cash
- cash required to sustain operations
Working capital loans to maintain cash requirements

26
Q

What do capital budgets detail?

A

Non current assets “PP&E”

The planned expenditures for capital items (eg. Facilities, equipment, new products, and other long- term investments)

27
Q

What is a flexible budget?

A

Used with most budgets and most industries
A financial plan prepared in a manner that allows for adjustments for changes in production or sales and accurately reflects expected costs for the adjusted output.

28
Q

What is the formula for fixed costs total?

A

Fixed cost
✖ Volume
————–
Fixed cost total

29
Q

What is budget variance analysis?

A

The first and most basic level of control and evaluation of operations
Becomes progressively more sophisticated as managers view either flexible budget comparisons.

30
Q

Why use the standard cost system for variance calculations?

A

To attain a realistic predetermined or budgeted cost for use in planning and decision making

31
Q

What is the difference between actual amounts and standard amounts called?

A

Variances

32
Q

What is a favorable variance?

A

When actual cost is lower than standard cost

33
Q

What is unfavorable variance?

A

When actual cost is higher than standard cost

34
Q

What is a controllable variance?

A

When a variance from standard could have been prevented

35
Q

If the variance from standard could not have been prevented iris called?

A

Uncontrollable variance

36
Q

How do you determine how the difference is calculated in variance analysis.

A

Standard- actual= difference

37
Q

How do you recognize the main 4 types of variance for raw materials and direct labor?

A

P- price variance( for DM)
U- usage (quality) variance (for DM)
R- rate variance ( for DM)
E- effective variance (for DL)

38
Q

How do these variances( for raw materials and direct labor) calculated?

A 
DADS twice
DA: difference✖ actual
DS: difference ✖ standard
DA: difference ✖ actual
DS: difference ✖ standard
39
Q

Line up DADS and PURE for direct materials and direct labor variances

A

P DA- DM price variance= difference ✖ actual

U DS- DM quantity usage variance= difference ✖standard

R DA- DL rate variance= difference ✖ actual

E DS- DL efficiency variance= difference ✖standard

40
Q

When standard costing is used, the application of overhead is accomplished in two steps: what are the two steps?

A

Step 1: calculated overhead rate= budgeted overhead costs ➗ estimated cost driver

Step 2: applied overhead= standard cost driver for actual level of activity ✖ overhead rate (from step 1)

41
Q

What are the three manufacturing overhead variances?

A

One way variance: 1 vs. 4

Two way variance: 1 vs 3 & 3 vs 4 (to BV or not to BV)

Three way variance: 1 vs 2, 2 vs 3, 3 vs 4 (ABA BSA)

42
Q

Explain one way variance.

A

Actual (1) vs overhead applied to WIP (standard total OH rate per DLH ✖ standard DLH allowed)(4)

43
Q

Explain two way variance.

A

Budget :
1 vs 3= Actual vs budgeted FOH + ( standard DLH allowed ✖ standard VOH rate per DLH)
Volume:
3 vs 4= Budgeted FOH + ( standard DLH allowed ✖ standard VOH rate per DLH) vs. overhead applied to WIP ( standard total OH rate per DLH✖ standard DLH allowed)

44
Q

Explain three way variance

A

Spending:
1 vs 2= actual overhead costs incurred vs budgeted FOH + (actual DLH worked ✖ standard. VOH rate per DLH)

2 vs 3 = budgeted FOH +(actual DLH worked ✖standard VOH rate per DLH) vs. budgeted FOH +( standard DLH allowed ✖ standard VOH rate per DLH)

3 vs 4= Budgeted FOH + ( standard DLH allowed ✖ standard VOH rate per DLH) vs. overhead applied to WIP ( standard total OH rate per DLH✖ standard DLH allowed)

45
Q

What can sales and contribution margin variance be used to evaluate?

A

The effectiveness of an entity’s identification of target markets and its strategies to capture those markets.

46
Q

What does sales price variance measure?

A

The aggregate impact of a selling price different from budget.

(Actual sales price➗ unit) - (budgeted sales price➗ unit) ✖actual sold units

47
Q

What is sales volume variance and how is it calculated?

A

A flexible budget variance that distills volume activity from other sales performance components

(Actual sold units- budgeted sales units) ✖ standard contribution margin per unit.

48
Q

What are the responsibility segments or strategic business units generally classified around what 4 financial measures?

A

CRPI
C- cost SBU: mgr control cost
R- revenue SBU: mgr generating revenue
P- profit SBU: mgr producing a target profit
I- Investment SBU: mgr responsible for return on assets invested to produce the earnings generated by the SBU.

49
Q

What are the three financial score cards?

A

Pointed “at us”
AT: accurate and timely
U: understandable
S: specific accountability by segment

50
Q

What is contribution reporting?

A

Profit in relation to controllable costs.
Contribution margin: revenues over variable costs
Controllable margin: contribution margin- controllable fixed costs

51
Q

What is the balance score card?

A

It gathers information on multiple dimensions of an organizations performance defined by critical success factors:
Financial: profit- pointed “at us”
Internal business processes: efficient production
Customer satisfaction: market share
Advancement of innovation and human resource development (learning and growth)- retention of key employees

Strategic Planning (2 decks)

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