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Comm 305: Managerial Accounting > chapter 10: budgetary planning > Flashcards

chapter 10: budgetary planning Flashcards

1
Q

budget

A

formal written statement in financial terms of management’s plans for a specified future time period

promotes efficiency

discourages waste and wankers

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2
Q

the primary benefits of budgeting

A
  1. management can plan ahead and formalize goals on a recurrent basis
  2. provides definitive objectives for evaluating performance
  3. creates early warning system for potential problems
  4. easier to coordinate activities within the business
  5. greater management awareness of overall operations
  6. motivates personnel to meet objectives
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3
Q

the most common budget period

A

one year

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4
Q

sales forecast

A

the framework on which the budget is developed

shows potential sales for the industry and the company’s expected shares of these sales

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5
Q

budget commitee

A

has the responsibility of coordinating the preparation of the budget in large companies

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6
Q

participative budgeting

A

each level of management is invited in developing the budget

starts from lower management, to top

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7
Q

advantages of participative budgeting

A

lower managers have more detailed knowledge of their specific area so that they can provide better budgetary estimates

lower managers will see the budget as fair

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8
Q

disadvantages of participative budgeting

A

more time consuming

more costly

can encourage budgetary gaming through budgetary slack

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9
Q

budgetary slack

A

occurs when managers intentionally under-estimate budget revenues or over estimate budget expenses for their department

they want to make their goals easier to achieve

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10
Q

what are the differences between budgeting and long-range planning?

A

the time period involved

emphasis on goals t achieve

the amount of detail presented

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11
Q

the time period involved for budgeting and long-range planning

A

usually, maximum period of budget is one year

lang-range planning usually over 5 years

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12
Q

emphasis on goals to achieve for budgeting and long-range planning

A

budgeting focuses on short-term goals

lang-range planning identifies long term goals, strategies to achieve them, and policies and plans development

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13
Q

amount of detail presented for budgeting and long-range planning

A

budgets much more detailed than long range planning

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14
Q

the master budget

A

combination of all budget documents

set of interrelated budgets that create a plan of action for a specified time period

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15
Q

two classes of budgets in the master budget

A

operating budgets

financial budgets

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16
Q

in the master budget, what is the first budget prepared?

why?

A

the sales budget

each of the other budgets depends on the sales budget and sales forecast

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17
Q

how do you find the sales budget?

A

expected sales volume in units · anticipated selling price

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18
Q

production budget

A

second step of master budget

shows units that must be produced to meet expected sales

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19
Q

formula of production budget

A

Expected Sales in units + Desired Finished Goods in units - Beginning Finished Goods in units

= Required Production Units

20
Q

third step of the master budget planning

A

finding the manufacturing budget

21
Q

what is part of the operating budget

A

direct materials budget

direct labour budget

MOH budget

22
Q

direct materials budget

A

shows quantity and cost of direct materials to be purchased

23
Q

what is first step in determining the direct materials budget?

how do you do it?

A

calculate the direct material units required

units to be produced · direct materials per unit produced

= Direct Material Units Required for Production

24
Q

what is the second step in determining the direct materials budget?

how do you do it?

A

we calculate the direct materials to be purchased

Direct Material Units Required for Production + desired Ending Direct Material Units - Beginning Direct Materials Units

= Required Direct Materials Units to be Purchased

25
Q

what is the last step in determining the direct materials budget?

how do you do it?

A

find the cost of direct materials purchases

Required Direct Materials Units to be Purchased · Cost per Direct Material Units

= Cost of Direct Materials Purchases

26
Q

how to calculate the total direct labor budget?

A

Units to be produced · Direct Labour Time per Unit · Direct Labour Cost per Hour

= total direct labor cost

27
Q

what determined the direct labor budget?

A

the production budget

28
Q

MOH budget

A

expected MOH cost fir budget period

29
Q

selling and administrative expenses budget

A

projects selling and administrative expenses for budget period

30
Q

what is the fourth step of finding the master budget?

A

selling and administrative expenses budget

31
Q

what is the fifth step of finding the master budget?

A

finding the budgeted income statement

32
Q

the budgeted income statement

A

indicates the expected profitability of operations for the budget period

provides basis for evaluating company performance

33
Q

what is the sixth step of finding the master budget?

A

finding the financial budget

34
Q

what is part of the financial budget?

A

cash budget

capital expenditure budget

balance sheet

35
Q

the cash budget

A

shows expected cash flows

considered the most important output in financial budgets

36
Q

cash receipts section of cash budget

A

cash from sales on cash or credit

receipt of dividends and interests

proceed from sales of investments, plant assets, and capital stock

37
Q

cash disbursements section of cash budget

A

shows expected cash payments

direct materials, direct labor, MOH, selling and administrative expenses

projected payments for income tax, dividends, investments, and plant assets

38
Q

financing section of cash budget

A

shows expected borrowings

shows expected repayments of funds plus interests

39
Q

benefits of a cash budget

A

more effective management

shows management when additional funding is necessary a long time before the money is needed

can indicate when cash will be in excess for investments of other purposes

40
Q

the budgeted balance sheet

A

a projection of the company’s financial position at the end of the budget period

41
Q

two major differences in master budgets between merchandiser and manufacturer

A
  1. a merchandiser uses a merchandise purchases budget instead of a production budget
  2. a merchandiser does not use the manufacturing budgets (DM, DL, MOH)
42
Q

the merchandise purchases budget

A

shoes estimated costs of goods to be purchased to meet expected sales

43
Q

formula for merchandise purchases budget

A

budgeted COGS + Desired Ending Merchandise Inventory - Beginning Ending Merchandise Inventory

required merchandise purchases

44
Q

several problems regarding budgeting with service companies when the staff is too big

A
  1. labour costs will be disproportionally high
  2. profits will be lower because of additional salaries
  3. staff turnover may increase because there is not enough challenging work
45
Q

for non-profit organizations, how is budget based on most of the time?

A

based on cash receipts and expenditures rather than revenue and expense

the starting point is usually expenditure¡, not receipt

Comm 305: Managerial Accounting (32 decks)

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