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Managerial Accounting > Ch 7 > Flashcards

Ch 7 Flashcards

1
Q

define budget

A

formal statement of company’s future plans

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2
Q

define budgeting

A

processing of planning formal business actions and expressing them as formal plans

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3
Q

what three things must mgmt focus on for budgetary analysis?

A
  1. future transactions
  2. future events
  3. future opportunities available
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4
Q

define control function

A

requirement of mgmt to evaluate (benchmark) business operations against some norm

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5
Q

what are the two usual alternatives that evaluating business operations involves comparing actual results against?

A
  1. past performance

2. expected performance

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6
Q

when is budgeted performance computed?

A

after careful analysis and research that attempts to anticipate and adjust for changes in important company, industry and economic factors

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7
Q

What are the three important guidelines in budgeting process?

A
  1. Participatory budgeting (employees affected by budget should be consulted when its prepared
  2. goals reflected in budget should be attainable
  3. evals should be made carefully when opps explain any failures
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8
Q

what are some potential negative outcomes of budgeting? (4)

A
  1. some employees might understate sales budgets and overstate expense budgets to allow cushion
  2. employees overstate expense budgets for budgetary slack (or cushion) to aid in meeting targets
  3. pressure to meet budgets might lead employees in unethical behavior or commit fraud
  4. some employees might spend entire budget even if not needed to ensure budgets aren’t reduced next year
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9
Q

Which departmental budget drives all other budgets?

A

sales

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10
Q

Budgets figures and estimates developed through what process are usually more useful?

A

bottom-up process

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11
Q

define continuous budgeting

A

practice of preparing budgets for a selected number of future period and revising those budgets as each period is completed

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12
Q

define rolling budgets

A

new set of budgets a firm adds for the next period (with revisions) to replace the ones that have lapsed

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13
Q

what three groups usually determine or influence the budgets

A

creditors
directors
management

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14
Q

define master budget

A

formal, comprehensive plan for company’s future.

contains several individual budgets that are linked with each other to form a coordinated plan

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15
Q

how do mgrs often express the expected financial results of planned budgeted activities

A

wth budgeted income statement for budget period and

budgeted balance sheet for end of budget period

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16
Q

what are the three overall categories that should be included in a master budget

A

operating budgets
capital expenditures budget
financial budgets

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17
Q

what are the six budgets that should be included in the master operating budget

A
  1. sales budget
  2. merchandise purchases budget (for merchandisers)
  3. production budget (for manufacturers)
  4. manufacturing budget (for manufacturers)
  5. selling expense budget
  6. general and admin expense budget
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18
Q

what is the merchandise purchases budget

A

units to be purchased

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19
Q

define capital expenditures master budget

A

expenditures for plant assets

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20
Q

what are the three budgets that should be included in the master financial budget?

A
  1. cash budget (receipts & disbursements)
  2. budgeted income statement
  3. budgeted balance sheet
21
Q

What are the five steps in creating a master budget?

A
  1. prepare sales budget
  2. develop production budget
  3. prepare manufacturing, selling and general admin & expense budgets
  4. prepare capital expenditures budgets
  5. consolidate operating and capital expenditures budgets into financial budgets (cash budget, budget income statement, budgeted balance sheet
22
Q

define sales budget

A
  • plan showing the units of goods to be sold or services to be provided
  • the starting point in budgeting process for most departments
23
Q

What two various merchandise purchasing/budgeting decisions take into account?

A
  1. the number of units added to inventory depends on budget sales volume
  2. inventory system
24
Q

define safety stock

A

quantity of inventory or materials over minimum needed to satisfy budgeted demand

25
Q

define merchandise purchases budget

A

plan that shows the units or costs of merchandise to be purchased by merchandising company during budget period

26
Q

in what two ways is a merchandise purchases budget expressed?

A
  1. units

2. dollars

27
Q

Merchandise purchases budget in equation form

A

inventory to be purchased = budgeted ending inventory + budgeted cost of sales for the period - budgeted beginning inventory

28
Q

How to compute number of dollars of inventory to be purchased for budget if merchandise purchases budget is expressed in units and only one product is involved

A

of dollars of inventory = units to be purchased * cost per units

29
Q

Merchandise Purchases Budget spreadseet

A 
Next month's budget sales (units)
* Ratio of inventory to future sales (*%)
=Budget ending inventory (units)
\+ budgeted sales
= required units of available merchandise
- beginning inventory (units) 
= units to be purchased
...
budget cost per unit 
(* units to be purchased)
=budgeted cost of merchandise purchases
30
Q

define selling expense budget

A

plan that lists the types and amounts of selling expenses expected in the budget period

31
Q

selling expense budget spreadsheet formula

A 
budgeted sales 
* sales commission percent
= sales commissions
\+ salary for sales manager
= total selling expenses
32
Q

define general and admin expense budget

A

plan that shows predicted operating expenses not included in the selling expenses budget

33
Q

Why is predicted income tax not included in general and admin budget?

A
  1. not able to figured estimated tax yet as cash has not yet been estimated.
34
Q

define capital expenditures budget

A

plan that lists dollar amounts to be both received from disposal of plan assets and spent to purchase plan assets

35
Q

at what point in the sequence of budget planning is the capital expenditures budget created?

A

after operating budgets

36
Q

define capital budgeting

A

process of evaluating and planning for capital (plant asset) expenditures

37
Q

what does the capital expenditures budget link to in regards to planning

A

the mgmt’s eval of company’s ability to take on more debt

38
Q

When is the financial budget created

A

after the operating and capital expenditures budgets

39
Q

Define cash budget

A

shows expected cash inflows and outflows during the period

40
Q

What is the general formula for cash budget?

A

beginning cash balance + budgeted cash receipts - budgeted cash disbursements = preliminary cash balance

41
Q

What two other budgets hold information needed to prepare the cash budget

A

operating budget

capital expenditures budget

42
Q

define budgeted income statement

A

accounting report that presents predicted amounts of company’s revenues and expenses for budget period

43
Q

Where is information needed for preparing a budgeted income statement found?

A

primarily from already prepared budgets

44
Q

define budgeted balance sheet

A

accounting report that presents predicted amounts of company’s assets, liabilities and equity balances as of end of the budget period

45
Q

Where is information needed for preparing a budgeted balance sheet found?

A

primarily from the other budgets

46
Q

define activity-based budgeting (ABB)

A

budget system based on expected activities

47
Q

define general and administrative expense budget

A

plan that shows predicted operating expenses not included in the selling expenses budget

48
Q

define manufacturing budget

A

plan that shows the predicted costs for direct materials, direct labor and overhead to be incurred in manufacturing units in production budget

Managerial Accounting (13 decks)

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