Exam 3 Flashcards
Strategic planning
Long term goals and strategies set for 5-10 years
Budget
A formal written statement of managements financial plan for the future
Rolling budget
A 12 month budget
Goal congruence
The managers personal goals are congruent with firms goals
Participating budgeting
Bottom up
Many levels of management create budget
Dysfunctional behaviour
Manager’s behaviour is conflicting with firms goals
Budgetary slack
A manager padding the budget deliberately
Master budget
A financial plan of action consisting of operating and financial budgets
Operating budgets
Budgets concerned with income generating activities
Flexible budget
The master budget flexed to different levels of activity
Zero based budgeting
Firm builds budgets from scratch
Safety stock
Extra inventory of finished goods kept on hand in case demand is higher than predicted
Responsibility accounting
A system for evaluating the performance of each responsibility Center and manager
Direct fixed costs
Directly traceable to one Center and controllable by Center manager
Segment margin
Operating income before subtracting common fixed costs
Management by exception
Only investigate variances that are large
Master budgets are prepared in ?
The beginning of the period
Volume variance measures?
How effective management is at meeting sales goals
Standard costs
Costs that should be incurred under efficient operations
Benefits of budgets
Requires managers to plan ahead
Provides objectives for evaluating performance
Creates an early warning system
Coordination of activities
Greater management awareness of operations
Motivates personnel
Advantages of decentralised operations
Management specialisation
Focusing of central management
Motivating managers
Competition between managers
Disadvantages of decentralised operations
Potential to duplicate resources
Managers make decisions that are only good for themselves
Advantages of ROI
Cost efficiency
Operating asset efficiency
Helps management decide how to invest funds
Compared oerformance overtime
ROI disadvantages
Focuses only on short run
Managers make decisions only good for their Center
Lagging indicator
Advantages of residual income
Encouragers managers to accept any project that earns above minimum rate of return
Disadvantages of RI
Focus on short run
Not a relative measure of profitability
Lagging indicator
Financial perspective measures
ROI Ri Average stock price Sales revenue Profit
Consumer perspective measures
Customer retention
Customer satisfaction
Market share
Learning and growth perspective
Employee skills and satisfaction
Employee education/training
Research and development
Internal business perspective
Product development
Product production
On time delivery
Quality
Advantages of standard costs
Cost benchmarks
Usefulness in budgeting
Employee motivation
Simplify bookkeeping
