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MA1 exam 3 notes PPT > Chapter 10 PPT > Flashcards

Chapter 10 PPT Flashcards

1
Q

What is a budget

A
  1. a formal written statement of management’s plans for a specific future time period, expressed in financial terms
  2. primary way to communicate agreed0upon objectives to all parts of the company
  3. Control device - important basis for performance and evaluation
  4. promotes efficiency
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2
Q

What does budgets promote

A

efficiency

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3
Q

What is a budget useful for once adopted

A

performance evaluation

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4
Q

What is used to formulate the data for budgets?

A

historical accounting data on revenues, costs, and expenses help formulate it

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5
Q

Who’s responsibility is the budget and its administration

A

management’s

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6
Q

who is responsible for presenting the management’s goals in financial terms?

A

accountants

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7
Q

What are the benefits of budgeting

A
  1. Requires all levels of management to plan ahead and formulize goals on a recurring basis
  2. provides definite objectives for evaluating performance at each level of responsibility
  3. Creates an early warning system for potential problems
  4. facilitates cooridination of activities witin the business
  5. results in greater management awareness of the entity’s overall operations and the impact of external factors
  6. motivates personnel throughout organization to meet planned objectives
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8
Q

What is an effective budget

A
  1. depends on a sound organizational structure with authority and responsibility for all phases of operations clearly defined
  2. is based on research and analysis with realistic goals
  3. is accepted by all levels of management
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9
Q

What should the length of budget be

A
  1. may be prepared for any period of time
  2. long enough to provide an attainable goal and minimize seasonal or cyclical fluctuations
  3. short enough for reliable estimates
  4. continuous 12 month bduget
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10
Q

What is the most time frame for a budget

A

one year

  • usually supplemented with monthy or quarterly budgets
  • different budgets cover different time periods
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11
Q

define continuous twelve month budget

A
  • drop the month just ended and add a future month

- keeps management planning a fully year ahead

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12
Q

What is the budgeting process

A
  1. base budget goals on past performance

2. develop budget within the framework of a sales forecast

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13
Q

Define base budget goals on past performance

A
  • collect data from organizational units

- begins several months before end of current year

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14
Q

Describe develop budget within the framework of a sale forecast

A
  • shows potential industry sales

- shows company’s expected share

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15
Q

What are the 7 factors considered in sales forecasting

A
  1. general economic conditions
  2. industry trends
  3. market research studies
  4. Anticipated advertising and promotion
  5. previous market share
  6. price changes
  7. technological developments
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16
Q

How are budgets different in small vs large companies

A

usually informal in small companies

- assigned to a budget committee in a larger companies

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17
Q

What does a budget committee include

A
  • president, treasurer, chief accountant (controller), and management personnel from each major area of the company
  • review board where managers defend budget goals and requests
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18
Q

What can budgets do to people

What does it depend on

A
  • may inspire higher levels of performance or discourage additional effort

depends on how budget developed and administered

  • should invite each level of management to participate
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19
Q

What bottom -to -top approach called and what is it

A

it is called participative budgeting

- invite each level of management to participate

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20
Q

What are the advantages of a participative budgeting

A

1 . more accurate budget estimates because lower level managers have more detailed knowledge of tier area
2. tendency to perceive process as fair due to involvement of lower level management

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21
Q

What is the goal for participative budgeting

A

produce a budget considered fair and achievable by managers while still meeting corporate goals

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22
Q

Risk of unrealisable budgets are greater when ………

A

they are top-down

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23
Q

What are the disadvantages of a participative budget

A
  1. can be time consuming and costly
  2. can foster budgetary “gaming” through budgetary slack
    (situation where managers intentionally under-estimate budgeted revenues or overestimate budgeted expenses so that budget goals are easier to meet
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24
Q

what is the time period difference in the short term and long range planning

A

short term - usually one year

long range planning - usually at least 5 years

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25
Q

what is the emphasis in the short term vs the long range planning

A

short term - achievement of specific short term goals

long range = identifies long term goals, selects strategies to achieve goals, and develops policies and plans to implement strategies

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26
Q

What is the detail presented in short term vs long term

A

short term - very detailed

long range - contains less detail review of progress toward long term goals

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27
Q

what is the master budget

A

a set of interrelated budgets that constitutes a plan of action for a specific time period
2. contains two classes of budgets

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28
Q

what are the two classes of budgets in a master budget

A
  1. operating budgets

2. financial budgets

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29
Q

Define operating budgets

A

individual budgets that result in the preparation of the budgeted income statement - establish goals for sales and production personnel

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30
Q

define financial budgets

A

the capital expenditure budget, the cash budget, and the budgeted balance sheet - focus primarily on cash needs to fund operations and capital expenditures

31
Q

What are the compoents of the master budget

A
  1. sales budget
  2. production budget
  3. dire materials budget, direct labour budgt, MOH budget
  4. selling and admin exp budget
  5. budget income statement
  6. capital expenditure budget
  7. cash budget
  8. budgeted balance sheet
32
Q

what are the operating budgets

A

sales, production, dM, DL, MOH, selling and Admin exp, I.s>

33
Q

What are the financial budgets

A

capital expenditure, cash, balance sheet

34
Q

What is the first budget prepared

A

sales budget

35
Q

what is the sales budget derived from

A

sales forecast

  • management’s best estimate of sales revenue form the budget period
  • every other budget depends on the sales budget
36
Q

How is the sales budget prepared

A

by multiplying expected unit sales volume for each product and anticipated units selling price

37
Q

What does the production budget show

A

shows units that must be produced to meet anticipated sales

38
Q

What is the required production in units formula

A

desired sales units + Desired Ending FG units - Beg FG units = Required production units

39
Q

What does the direct material budget show

A

shows both the quantity and cost of direct materials to be purchased

40
Q

What is the formula for the direct materials budget

A

units required for production + Desired ending DM units - Beg DM units = Required DM units to be purchased

budgeted cost of DM to be purchased required units of DM x anticipated cost per unit

41
Q

What does the direct labour budget show

A

both the quantity of hours and the cost of direct labour necessary to meet production requirements

42
Q

What is the direct labour budget critical for

A

critical in maintaining a labour force that can meet expected production

43
Q

what is the formula for direct labour

A

units to be produced x DL time per unit x DL cost per hour = Total DL Cost

44
Q

What does the manufacturing overhead budget show

A

the expected manufacturing overhead costs for the budget period

45
Q

What does the manufacturing overhead budget distinguish between?

A

distinguishes between fixed and variable overhead costs

46
Q

What does the selling and admin expense budget show

A

projection of anticipated operating expenses

47
Q

What does the selling and admin expense budget distinguish between

A

fixed and variable costs

48
Q

what is the important end-product of the operating budgets

A

the budgeted income statement

49
Q

What does the budgeted income statement indicate

A

Expected profitability of operations

50
Q

What does the budgeted income statement provide a basis for

A

evaluating company performance

51
Q

What is used to create the budgeted income statement

A

the operating budgets (sales, production, DM, DL, MOH, and Sell & Admin)

52
Q

What does the cash budget show

A

anticipated cash flows

53
Q

What is the most important output in preparing financial budgets

A

the cash budget

54
Q

what are the sections in the cash budget

A
  1. cash receipts
  2. cash disbursements
  3. financing
55
Q

What does the cash budget show

A

beginning and ending cash balances

56
Q

what does the cash budget cash creipts section show

A
  • includes expected receitps form the principal sources of revenue (cash collections on credit sales)
  • shows expected interest and dividend receipts, as well as proceeds form planned sales of investments, plant assets, and capital stock
57
Q

What does the cash disbursement section show in the cash budget

A

includes expected cash payments for DM, DL, taxes, Dividends, plant assets etc.

58
Q

What does the financing section of the cash budget show

A

expected borrowings and repayments of borrowed funds plus interest

59
Q

in the cash budget, ending cash balance of one period = what|?

A

beginning cash balance for the next period

60
Q

Where does the cash budget get its information

A

from other budgets form management

61
Q

How often is a cash budget prepared

A

usually prepared for the year on a monthly basis

62
Q

What are some benefits of the cash budget

A
  1. contributes to more effective cash management
  2. shows managers need for additional financing before actual need arises
  3. indicates when excess cash will be available
63
Q

What is a budgeted balance sheet

A

a projection of finaical position at the end of the budget period

64
Q

How is the budgeted balance sheet developed

A

developed form the budgeted balance sheet for the preceding year and the budgets for the current year

65
Q

Which of the following would necver appear on a cash budget

a. delivery expense
b. . deprecation expense
c. cost of material purchases
d. cash received from customers

A

b

depreciation expense

66
Q

In merchandising company how do they develop the budget

A
  1. sales budget: starting point and key factor in developing the mater budget
  2. uses a pruchases budget instead of a production budget
  3. does not sue the manufacutirng budgets (DM, DL and MOH)
  4. to determine budgeted merchandise pruchases the formula is
    budgeted cost of goods sold + desired ending merchandise inventory - beginning merchandise inventory = required merchandise purchases
67
Q

Budgeting in a service company

what is the critical factor

A

is coordinating professional staff needs with anticipated services

68
Q

In a service company what happens if they are overstaffed

A
  • disproportionately high labour costs
  • lower profits due to additional salaries
  • increased staff turnover due to no challenging work
69
Q

In a service company what happens if they are understaffed

A
  • lost revenue because existing and prospective clients needs for service cannot be met
    • loss of profiessional staff due to excessive work loads
70
Q

How does a not for profit company basis its budget on

A

basis of cash flows (expenditures and receipts) , rather than on revenue and expenses

71
Q

What is the starting point in a not-for -profit company

A

expenditures not receipts

72
Q

What is an important difference with not-for profit

A

significantly different activity index

73
Q

The budget for a merchandiser differs from a budget for a manufacturer because:
A merchandise purchases budget replaces the production budget.
The manufacturing budgets are not applicable.
None of the above.
Both a. and b. above.

A

Both a. and b. above

MA1 exam 3 notes PPT (20 decks)

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