Budgeting_Flashcards
What is the purpose of budgeting?
To plan, control, and evaluate financial activities through resource allocation.
What are the components of a master budget?
Sales budget, production budget, direct materials budget, direct labor budget, overhead budget, selling and administrative expense budget, cash budget, budgeted income statement, and budgeted balance sheet.
What is a sales budget?
A detailed schedule showing expected sales in units and dollars for a specific period.
Why is the sales budget important?
It drives the entire budgeting process and is the basis for other budgets.
What is a production budget?
Ensures enough units are produced to meet sales demands and inventory requirements.
What is included in a cash budget?
Receipts, disbursements, and financing sections to plan cash flow.
What is budgetary slack?
A cushion added to budgets by overestimating costs or underestimating revenues.
What is participative budgeting?
A process where lower-level managers contribute to budget estimates.
What is a flexible budget?
A budget that adjusts for changes in activity levels, providing better performance evaluation.
How does a static budget differ from a flexible budget?
Static budgets are fixed and do not change with activity levels, while flexible budgets adjust.
What are guaranteed labor hours?
Minimum hours for which employees are paid, regardless of hours worked.
What are the benefits of participative budgeting?
Encourages ownership, improves accuracy, and increases motivation among managers.
What are the challenges in budgeting?
Budgetary slack, unrealistic estimates, and ensuring coordination across departments.
What is the master budget?
A comprehensive financial plan integrating all individual budgets for a period.
What is a continuous budget?
A 12-month budget that rolls forward as each month is completed.
What are the key differences between static and flexible budgets?
Static budgets remain fixed regardless of activity, while flexible budgets adjust with actual activity.
What is the importance of a cash budget?
It helps identify potential cash shortages or surpluses and plan financing needs.
What are potential exam questions on budgeting?
- Benefits of participative budgeting. 2. Differences between static and flexible budgets. 3. Components and interrelations in a master budget.
What is included in a budgeted income statement?
Expected revenues, expenses, and net income for the budget period.
How is the budgeted balance sheet prepared?
By combining ending balances from individual budgets like cash, inventory, and equipment.
draw the master budget
check on notes
Cash budget rows.
check notes
budgeted balance sheet equipment
Inventory balance + purchases of equipment done in the cash budget
to prepare a flexible budget we need to know that
total variable costs CHANGE in direct proportion to changes in activity
total fixed costs remain unchanged
