Ch1. Introducing Short Term Budgeting Flashcards
A realistic plan expressed in quantitative terms for a certain future period of time.
Budget
Composed of key management persons who are responsible for overall policy matters relating to the budget program and for coordinating the preparation of the budget itself.
Budget Committee
What are the advantages of budgeting?
- Used by top management to communicate the plans and goals throughout the organization.
- Forces management to think about and plan for the future.
- Resources are more appropriately allocated.
- Potential bottlenecks can be discovered.
- Promotes coordination of the activities of the entire organization.
- Goals and objectives identified in the budgeting process can serve as benchmarks or standards for evaluating performance.
Revised on a regular basis.
Continuous (Rolling) BudgetRevised on a regular basis.
Based on only one level of activity (sales or production volume).
Fixed Budget
A series of budgets prepared for many levels of activity.
Flexible Budget
The current period’s budget is adjusted to allow for changes planned for the coming period.
Incremental Budget
Prepared every period from a base of zero, regardless of previous results.
Zero Based Budgeting
Revenues and expenses are estimated over the product’s entire life cycle.
Life Cycle Budgeting
Applies the ABC principles and procedures.
Activity-Based Budgeting
Assumes the continuous improvement of products and processes.
Kaizen Budgeting
Governed by government.
Governmental Budgeting
What are the types of budgets?
- Continuous (Rolling Budget)
- Fixed
- Flexible
- Incremental
- Zero Based Budgeting
- Life Cycle
- Activity-Based
- Kaizen
- Governmental
The process is dependent on the organizational structure and purposes.
budgeting process
Encompasses the organization’s operating and financial plans for a certain future period of time.
Master Budget
How does the Master Budget process start?
The budgeting process normally starts with the basic question: ‘Is there a market for the business?’ As such, the master budget starts with the preparation of the Sales Budget.
The projected amount of units a company anticipates selling in a set period of time and the revenue it could earn.
It is a forecast based on trends and the business environment.
Sales Budget
Based on the budgeted sales and inventory policies. Inventory policy is based on the number of units to be sold and the desired level of inventory.
Production Budget
Based on the budgeted production.
- Direct materials used budget
- Direct materials purchases budget
Direct Materials Budget
Based on the budgeted production and the number of standard direct labor hours needed per unit of production.
Direct Labor Budget
Is constant in total and the standard FOH rate is based on normal capacity.
Fixed Overhead
FOH rate per unit varies based on the budgeted production. In short term budgeting, the standard FOH rate is considered constant.
Factory Overhead Budget
Operating expenses are estimated in detail and separate projections are done for marketing, selling, distribution, research & development, customer service, and administrative expenses.
Budgeted Income Statement
The estimated value of assets, liabilities, and equity in the foreseeable future, considering foreseen increases or decreases in assets, e.g., acquisition of fixed assets, depreciation, and write-offs.
Budgeted Statement of Financial Position
Shows the foreseen sources of cash inflows and foreseen cash outflows, taking into account capital expenditures (assets purchased have a useful life of one year or more).
Budgeted Statement of Cash Flow
Income Statement, Balance Sheet, Statement of Cash Flows generally follow the same format with the actual financial statements except that they contain projected figures.
Budgeted Financial Reports
