Chapter 9: Creating a Budget Flashcards
F. What are the two reasons managers prepare budgets?
- Communicate their plans to employees and to coordinate the activities of employees across the entire organization
- Compare with actual results to evaluate employee and organizational performance
What are the two approaches to budgeting?
- Top-down: Upper management establishes the budgets with little input from others
- Bottom-up: Lower level employees are involved in budgeting process*
The ___ is responsible for overseeing and approving the master budget regardless of the approach used to create it.
Budget committee
A ___ is a series of budget schedules outlining the organizations plans for the upcoming period (monthly, quarterly, or annually).
Master budget
F. The ___ is the most important budget because it drives the other budgets.
Sales budget
The master budget for a manufacturing company includes budget schedules for (8):
- Sales
- Production
- DM, DL, and MFO
- Selling and Admin
- Income statement
- Capital expenditures
- Cash
- Balance sheet
Which organizations do not have production-related budgets? What do they have instead?
Merchandising organizations
Purchase budget
Which organizations do not have merchandise purchase budgets? What do they have instead?
Service organizations
Projected sales and labor costs
___ organizations use budgets for planning and control purposes.
Not-for-profit
A conflict often exists between planning and control phases of budgeting. The ___ phase is most concerned about getting accurate estimates that lead to positive results, while ___ phase requires evaluating performance of employees by comparing actual results to the operating budget often leading to employees deciding between doing what is best for the individual or the organization.
Planning
Control
F. quiz: A budget:
a. ignores past performance because it represents management’s plans for a future time period
b. is the primary method of communicating agreed upon objectives throughout an organization
c. is the responsibility of management accountants
d. may promote efficiency but has no role in evaluating performance
b. is the primary method of communicating agreed upon objectives throughout an organization
F. quiz: he formula for the production budget is budgeted sales in units plus:
a. desired ending finished goods units less beginning finished goods units
b. beginning finished goods units less desired ending finished goods units
c. desired ending merchandise inventory less beginning merchandise inventory
d. desired ending direct materials units less beginning direct materials units
a. desired ending finished goods units less beginning finished goods units
quiz: Each of the following budgets is used in preparing the budgeted income statement except the:
a. sales budget
b. capital expenditure budget
c. direct labor budget
d. selling and administrative budget
b. capital expenditure budget
F. quiz: The format of a cash budget is:
a. Beginning cash balance + Cash revenues - Cash expenses = Ending cash balance
b. Beginning cash balance + Cash receipts - Cash disbursements +/- Financing = Ending cash balance
c. Beginning cash balance + Cash receipts + Cash from financing - Cash disbursements = Ending cash balance
d. Beginning cash balance + Net income - Cash dividends = Ending cash balance
b. Beginning cash balance + Cash receipts - Cash disbursements +/- Financing = Ending cash balance
F. quiz: Which of the following is an example of the planning function of the budgeting process?
a. The budget outlines a specific course of action for the coming period
b. Budget figures are used to evaluate the performance of managers
c. Employees are motivated to achieve the goals set by the budget
d. A budget demands integrated input from different business units and functions
a. The budget outlines a specific course of action for the coming period
F. quiz: The starting point in developing the master budget is the preparation of the
b. budgeted income statement
c. cash budget
a. sales budget
quiz: Which of the following describes the cash budget?
Select one:
a. It captures the variable and fixed expenses of the business
b. It helps in planning to ensure the business has adequate cash
c. It aids in planning to ensure the company has adequate inventory and cash on hand
b. It helps in planning to ensure the business has adequate cash
quiz: Culinary Enterprises manufactures cookware sets and sells the sets to department stores. Culinary expects to sell 2600 cookware sets for $220 each in April and 3000 cookware sets for $235 each in May. Sales are 25% cash and 75% on account. Compute the total budgeted sales for May.
a. $705,000
b. $572,000
c. $528,750
d. $176,250
a. $705,000
3000 x 235 = 705,000
F. quiz: June sales were $30,000, while projected sales for July and August were $52,000 and $74,000, respectively. Sales are 60% cash and 40% credit. All credit sales are collected in the month following the sale. Calculate expected collections for July.
a. $12,000
b. $31,200
c. $43.200
d. $38,800
c. $43.200
30,000 x 40% = 12,000 (June credit sales)
52,000 x 60% = 31,200 (July cash sales)
31,200 + 12,000 = 43,200
The ___ budget is an estimate of units of product the organization expects to sell times the expected sales price per unit.
Sales budget
The ___ budget is an estimate of raw materials needed to achieve a desired level of production.
DM purchase budget
The ___ budget is an estimate of units to be produced and is based on sales projections plus an estimate of desired ending finished goods inventory less beginning finished goods inventory
Production budget
The ___ budget is an estimate of direct labor hours, and related costs, necessary to achieve a desired level of production
DL budget
The ___ budget is an estimate of all production costs, other than direct materials and direct labor, necessary to achieve a desired level of production.
MFO budget
F. The ___ budget is an estimate of all operating costs other than production
Selling and administrative budget
The ___ is an estimate of the organization’s profit for a given budget period
Budgeted income statement
The___ budget is an estimate of the long-term assets to be purchased during the budget period. This includes purchases of tangible long-term assets such as property, plant, and equipment, and intangible assets, such as patents, copyrights, and trademarks.
Capital expenditures budget
The ___ budget is an estimate of the amount and timing of cash inflows and outflows for the budget period. It will signal when short-term borrowing is necessary and allows time for the treasurer to arrange for financing
Cash budget
The ___ is an estimate of the ending balances for all balance sheet accounts
Budgeted balance sheet
