Exam 3 Study Guide Flashcards
3 levels of planning for business:
strategic planning, capital budgeting, operating budgeting
strategic planning
involves making long term decisions such as: defining scope of business, determining which products to develop/discontinue and identifying most profitable market
capital budgeting
intermediate range planning. involves decisions on whether to buy or lease equipment, etc.
operations budgeting
short term plans. key component is master budget. sales targets, production goals and financing plans.
master budget
group of detailed budgets and schedules representing the company’s operating and financial plans for a future accounting period
What are the advantages of budgeting?
planing, coordination, performance measurement and corrective action
What are the key factors to help develop budget standards?
combined experience, forecasting ability for all personnel who have responsibility for price and usage decisions and judgement
unfavorable costs…
occur when actual costs are more than expected costs
favorable costs…
occur when actual cost are less than expected costs
Responsibility Accounting
focuses on evaluating the performance of individual managers
Responsibility Centers
an organizational unit that controls identifiable revenue or expense items
3 categories of responsibility centers
cost, profit, investment
cost (responsibility center)
incurs expenses but doesn’t generate revenue
profit (responsibility center)
not only incurs expenses but also generates revenue
investment (responsibility center)
managers are responsible for revenues and expenses and the investment of capital
