Ch. 10 - Budgets Flashcards
Master budget
A comprehensive budget for a specific period
The master budget consists of _______ _________ and a set of ___________ _________ and _________ _________
the master budget consists of a capital budget and a set of interrelated operating and financial budgets
Sales Budget
A schedule showing forecasted sales, in units and dollars, for an upcoming period.
What is sometimes called teh cornerstone of the entire master budget because of its affect on other budgets?
The sales budget
What is the starting point in preparing a sales budget?
The sales forecast
What factors should be included in sales forecasting?
-Current sales levels ans sales trends of the past few years
-General economic and industry conditions
-Competitors’ actions and operating plans
-Pricing policies
-Credit policies
-Advertising and promotional activities
-The level of unfulfilled back order
production budget
A budget showing planned output (production) for an upcoming period.
For manufacturers, planned production in a given period depends on what three factors?
-budgeted sales
-the desired ending inventory (in units)
-The units in finished goods inventory on hand at the beginning of the period
budgeted production (in units) = budgeted sales (in units) + desired ending inventory (in units) – beginning inventory (in units)
direct materials usage budget
A plan that shows the amount and budgeted cost of direct materials required for planned production.
direct materials purchases budget
A budget that shows the physical amount and cost of planned purchases of direct materials.
manufacturing cells
A set of machines, typically laid out in the form of a semicircle, needed to produce a particular product or part.
merchandise purchases budget
A budget that shows the amount (and cost) of merchandise a firm plans to purchase during the budget period.
cash budget
A schedule depicting the effects on cash of all budgeted activities.
What three major sections does a cash budget contain?
- Net cash from operating activities
- Net cash flows from investing activities
- Net cash from financing activities
What is one of the primary advantages of conducting sensitivity analysis?
The ability to isolate risks associated with particular components of operations and to develop contingency plans for dealing with those risks.
What is the main difference in budgeting for a service company versus manufacturing or merchandising?
The absence of production or merchandise purchases budgets and their ancillary budgets.
zero-base budgeting (ZBB)
A budgeting process that requires managers to prepare budgets each period from a base of zero.
activity-based budgeting (ABB)
A budgeting process that is based on activities and associated activity costs to support production and sales; an extension of the traditional form of activity-based costing (ABC).
time-driven activity-based budgeting (TDABB)
A method of budget preparation used in conjunction with a time-driven activity-based cost (TDABC) system.
practical capacity
Theoretical capacity reduced by normal output losses due to personal time, normal maintenance, and so on; the measure of capacity often recommended for estimating cost-driver rates under ABC and TDABC systems.
kaizen budgeting
A budgeting approach that incorporates continuous improvement expectations in the budget.
budgetary slack
The difference between budgeted performance and expected performance; a “cushion” managers intentionally build into budgets to help ensure success in meeting the budget.
goal congruence
The consistency among the goals of the firm, its subunits, and its employees. It is achieved when the manager acts independently in such a way as to simultaneously achieve personal objectives and those of top management.
fixed-performance contract
An incentive compensation plan whereby compensation (reward) is a function of actual performance compared to a fixed (budgeted) target.
gaming the performance measure
Non-value-adding actions taken by managers to improve indicated performance.
relative-performance (or relative-improvement) contracts
Contracts that reward managers for performance based on a comparison of actual results with specified benchmarks, not budgeted (fixed) targets; contrast with fixed-performance contracts.
rolling financial forecast
A constant planning horizon with the use of regularly updated forecasts.
What budgets does the master budget consist of (for manufacturers)?
-sales budget
-production budget
-direct materials budget
-direct labor budget
-factory overhead budget
-selling & admin expense budgets
-cash budget
-budgeted financial statements
Budgets include estimates for key inputs such as….
sales volume, sales mix, total fixed costs, variable costs per unit, and seling price per unit
What are the benefits of budgeting?
-Planning
-Coordination
-Feasibility
