Chapter 8 Flashcards
What is planning?
Developing goals and preparing various budgets to achieve these goals
What is a budget?
Detailed plan for the future that is usually expressed in formal quantitative terms.
Actual spending compared to the budget to make sure plan being followed.
Used to PLAN and CONTROL
What is controlling?
Gathering feedback to ensure that the plan is being properly executed or modified as circumstances change
Advantages of budgeting? (6)
Communicate managements plans throughout the org.
Force managers to think about and plan for the future.
Provides all means of allocating resources to these parts of the org where they can be used most effectively.
Can uncover potential bottlenecks before they occur.
Coordinate the activities of the entire org by integrating the plans of its various parts.
Define goals and objectives that can serve as benchmarks for evaluating subsequent performance.
What is responsibility accounting?
Holding managers accountable for those items that the manager can actually control to a significant extent.
What is a continuous or perpetual budget?
12-month budget that rolls forward one month (or quarter) as the current month (or quarter) is completed.
What is a self-imposed or participative budget?
Prepared with the full-cooperation and participation of managers at all levels
Advantages of self-imposed budgets (4)
Individuals at all levels recognized as members of the team.
Budget estimates prepared by front-line management are usually more accurate and reliable.
Motivation is higher when individuals participate in setting their own goals.
When manager can’t meet budget imposed from above can always say it was too realistic.
2 limitations of self-imposed budgeting
Lower-level managers may make suboptimal budgeting recommendations if lack the broad strategic perspective possessed by top managers.
May allow low-level managers to create too much budgetary slack.
What is a master budget?
Consists of a number of separate but interdependent budgets that formally lay out the company’s sales, production, and financial goals
What is a sales budget?
Detailed schedule showing the expected sales for the budget period.
If this budget is wrong, the rest of the budget will be too.
Feeds into the production budget.
What is the cash budget?
Detailed plan showing how cash resources will be acquired and used.
What is the production budget?
Prepared after the sales budget. Lists the number of units that must be produced to satisfy sales needs and provide for the desired ending finished goods inventory.
What is the production budget influenced by?
The desired level of ending finished goods inventory.
What is a merchandise purchases budget?
Used by merchandising companies instead of a production budget (used by manufacturing companies)
- shows amount of goods to be purchased from suppliers during the period
What is a direct materials budget?
Prepared after production requirements have been computed.
- details the raw materials that must be purchased to fulfill the production budget and provide for adequate inventories.
What is the direct labor budget?
shows the direct labor hours required to satisfy the production budget.
What is the manufacturing overhead budget?
Lists all costs of production other than direct materials and direct labor.
What is the ending finished goods inventory budget?
Computes the cost of unsold units
What is the selling and administrative expense budget?
Lists the budgeted expenses for areas other than manufacturing
What are the 4 sections of the cash budget?
Receipts, disbursements, cash excess or deficiency, financing
What does the receipt section show?
Lists all cash inflows except financing expected
What does the disbursements section show?
All cash payments planned for budget period
What does the financing section show?
The borrowings, principal, and interest repayments projected to take place
What Is the budgeted income statement?
Shows the company’s planned profit. Serves as benchmark against which subsequent company performance can be measured
What is the budgeted balance sheet?
Developed using data from the balance sheet from the start of the budget period and data contained in the various schedules
What’s the importance of participative budgeting? (4)
Individuals at levels recognized as members of the team.
Budget estimates prepared by front-line managers are more accurate.
Motivation is higher when participate in setting own goals.
Manager unable to meet budget from above can say it was unrealistic and impossible.
What is the sales budget and equation?
Detailed schedule showing expected sales for the budget period.
Unit sales x selling price = total sales
What is the production budget?
Lists the number of units that must be produced to satisfy sales needs and to provide for the desired ending finished goods inventory.
What is the direct materials budget?
Details the raw materials that must be purchased to fulfill the production budget and provide for adequate inventories
