Chapter 8

Question 1

How is a self imposed budget prepared and reviewed?

Answer 1

It is prepared with full cooperation and participation of managers at all levels and reviewed by higher management to prevent budgetary slacks

Question 2

What is the equation for a sales budget?

Answer 2

sales = unit sold * price per unit

Question 3

What is the equation for production budget?

Answer 3

Finished units to be produced = expected unit sales + desired ending inventory - beginning inventory of units

Question 4

What are the two equations for a direct materials purchase budget?

Answer 4

Quantity purchase budget = (units to produce * material requirement per unit) + desired ending inventory of material - Beginning inventory of material

Purchase $$$ budget = quantity purchase budget * price per unit of material purchased

Question 5

What is the formula for direct labor budget?

Answer 5

Units of production
*direct labor hours per unit
=labor time required
*hourly wage
=total

Question 6

What is the layout for a cash budget?

Answer 6

Begin. cash balance
+cash collection
=total cash available
-cash disbursement (materials, direct labor, moh, selling and admin., equip. purchase, dividend)
=total excess/deficiency
financing (borrowing, repayment, interest)
= ending cash balance

Question 7

What is the equation for fixed and variable MOH budget?

Answer 7

Variable MOH = production * variable cost per unit produced

Fixed MOH = a fixed expense per period

Question 8

What is the equation for ending inventory budget?

Answer 8

Ending inventory $ = (DM/unit + DL/unit + MOH/unit) * units in ending inventory

Question 9

What is the equation for variable and fixed S&A budget?

Answer 9

Variable S&A = variable S&A expense per unit * units sold

Fixed S&A = Budgeted fixed cost per period

Question 10

What is the order of the master budget?

Answer 10

Sales
End. invent. <-> production
DM, DL, MOH
Cash

• S&A comes from the sales budget directly to the cash budget