Chapter 8 - Master Budgeting Flashcards
What is a detailed quantitative plan for acquiring and using financial and other resources over a specified forthcoming time period?
A budget
What is the act of preparing a budget?
Budgeting
What is the use of budgets to control an organization’s activities?
Budgetary control
What involves developing objectives and preparing various budgets to achieve those objectives?
Planning
What involves the steps taken by management to increase the likelihood that the objectives set down while planning are attained and that all parts of the organization are working together toward that goal?
Control
List 5 advantages of budgeting
- Define goals and objectives
- Think about and plan for the future
- Means of allocating resources
- Coordinate activities
- Communicate plans
Which items should managers be held responsible for?
Only the items that they can significantly control
Fill in the Blanks:
Responsibility accounting enables organizations to _________ to deviations from their plans and to ____ from feedback.
- React quickly
2. Learn
What is a 12-month budget that rolls forward one quarter as the current quarter is completed?
A continuous budget
What is a budget that is prepared with the full cooperation and participation of managers at all levels?
A self-imposed budget
What are the 4 advantages of a self-imposed budget?
- Individuals from all levels are seen as members of the team
- It’s more accurate
- Motivation is higher
- It gets rid of the unrealistic claim
What is based on various estimates and assumptions?
A master budget
What is the layout of the sales budget?
Budgeted unit sales
Selling price per unit
Total budgeted sales
What is the formula to find the total budgeted sales?
Budgeted unit sales x selling price per unit
What is the production budget expressed in?
Units
What is the layout of the production budget?
Total Budgeted Sales Add: Desired Ending Finished Goods Inventory Total Needs Less: Beginning Finished Goods Inventory Required Production
What is the formula to find the desired ending finished goods inventory?
Next quarters budgeted sales in units x desired ending inventory %
What is the beginning finished goods inventory equal to?
The previous quarters desired ending finished goods inventory
What is the year’s desired ending finished goods inventory equal to?
The last quarters desired ending finished goods inventory
What is the year’s beginning finished goods inventory equal to?
The first quarters beginning finished goods inventory
What is the layout of the direct labor budget?
Required production Direct labor time per unit Labor hours required Hourly wage rate Total direct labor cost
What is the formula to find the labor hours required?
Required production x direct labor time per unit
What is the formula to find the total direct labor cost?
Labor hours required x hourly wage rate
What is the layout of the manufacturing overhead budget?
Labor Hours Required Variable Manufacturing Overhead Rate Variable Manufacturing Overhead Fixed Manufacturing Overhead Total Manufacturing Overhead Less: Depreciation Cash disbursement of manufacturing overhead
How do you find the total fixed manufacturing overhead?
You add all the fixed manufacturing overhead
What is depreciation?
A noncash charge
What are the 4 sections of the cash budget?
- Cash receipts
- Cash disbursements
- Cash excess or deficiency
- Financing
What is the layout of the cash budget?
Beginning cash balance Add: Total cash receipts Total cash available Less: Cash disbursements Excess (deficiency) Financing: Borrowing Repayment Interest Total Financing Ending Cash Balance
What is the formula to find the total cash available?
Beginning cash balance + total cash receipts
What is the formula to find the cash budget’s excess/deficiency amount?
Total cash available - cash disbursements
When do you borrow money?
When your excess(deficiency) amount is below the minimum cash balance
What is the formula to find interest?
Borrowed amount x % x (# number of quarters after you borrowed the money/total number of quarters)
What is the formula to find the ending cash balance?
Excess/Deficiency + total financing
True or False:
The repayment and interest values are always negative
True
What is the 2nd quarters beginning cash balance equal to?
The previous month’s ending cash balance
What is the year’s beginning cash balance equal to?
The first quarters beginning cash balance
What is the year’s ending cash balance equal to?
The lash quarters ending cash balance
If you cash balance has a deficiency how much money should you borrow?
The amount that brings you ending cash balance to the minimum cash balance amount
List the order of the budgets
- Sales Budget
- Production Budget
- Direct Labor Budget
- Manufacturing Overhead Budget
- Cash Budget
What is included in the sales budget?
The Expected Cash Collections
Who should review the self-imposed budgets?
Higher levels of management
Why should self-imposed budgets be reviewed by higher levels of management?
It prevents “budgetary slack”
Fill in the Blanks:
Top management must be ________ and ________ to the budget process.
- Enthusiastic
2. Committed
Fill in the Blanks:
Top management must not use the budget to ______ employees or ______ them when something goes wrong.
- Pressure
2. Blame
What are usually preferred when managers are rewarded based on meeting budget targets?
Highly achievable budget targets
What question does the sales budget answer?
How much sales revenue will we earn?
What is computed at the end of the budgeting period?
The balance sheet
Which section of the cash budget lists all cash inflows excluding cash received from financing?
The cash receipts section
Which section of the cash budget consists of all cash payments excluding repayments of principal and interest?
The cash disbursements section
Which section of the cash budget determines if the company will need to borrow money or if it will be able to repay funds previously borrowed?
The cash excess or deficiency section
Which section of the cash budget details the borrowings and repayments projected to take place during the budget period?
The financing section
Which expense doesn’t appear on the cash budget?
Depreciation expense
Which expense doesn’t appear on the schedule of cash payment for selling & revenue expense budget?
Depreciation expense
Which budget covers a one-year period corresponding to the company’s fiscal year?
The operating budget
What is a continuous budget also known as?
Perpetual budget
What is a self-imposed budget also known as?
Participative budget
What is the formula to find the expected cash collection’s cash sales?
Month sales x % of cash sales
What is the formula to find the expected cash collection’s credit collection?
Month sales x % of credit sales x % collection in that month
What is the formula to find the expected cash collection’s total cash collection?
Month cash sales + Month credit collection + Month 1 + Month 2
What is the formula to find the expected cash collection’s accounts receivable at the end of the month?
Month cash sales x % of credit sales x % collected in Month 1
