Exam 4 Flashcards
Budgeting
Used in Managing Operations
- Establishes Specific Goals
- Executes plans to achieve goals
- Periodically compare actual results with the goals
Human Behavior from Budgeting Process
- Budget goals are set too tight, which are very hard/impossible to achieve
- Budget goals are set too loose, which are very easy to achieve
- Budget goals conflict with objectives of company and employees
Who develops a Budget?
The budget committee
Who comprises a budget committee
- Budget Operator
- Treasurer
- Sales Manager
- Controller
- Production Manager
Who monitors and summarizes the budget process?
Accounting Department
Static Budget
Shows expected results of a responsibility center for only ONE activity level. Once determined, there are no changes
Flexible Budget
Shows expected results of a responsibility center for SEVERAL activity levels. A series of static budgets
Steps to construct a flexible budget
1 ) Identify relevant activity levels (units, DL hours, activity base)
2 ) Identify fixed and variable cost components of costs being budgeted
3 ) Prepare budget for each activity by MULTIPLYING the variable cost per unit by the activity level and then ADD monthly fixed cost
Master Budget
Integrated set of operating and financing budgets for a period of time. Prepared on a yearly basis
Sales Budget
Begins by estimating quantity sales (use prior year’s sales)
Once estimated, budgeted sales revenue can be determined.
Budgeted Revenue = Expected sales volume X Expected unit sales price
Production Budget
Estimates the number of units to be manufactured to meet budgeted sales and desired inventory levels
Expected units to be sold \+ desired units in end inventory - estimated units in beginning inventory ------------------------------------------------------------ Total units produced
Direct Materials Budget
Estimates the quantities of direct materials to be purchased to support budgeted production and desired inventory levels.
How to determine DM budget
1 ) budgeted DM for production =
Budgeted production volume X DM quantity expected per unit
2 ) ( for each material)
Materials required for production (Step 1)
+ Desired end materials inventory
- Estimated beginning materials inventory
—————————————————————-
Direct materials quantity to be purchased
3) Budgeted DM to be purchased =
DM quantity to be purchased (Step 2) X unit price
Direct Labor Budget
Estimates the DL hours and related costs needed to support budgeted production
How to determine DL budget
1 ) budgeted DL hours required =
Budgeted production volume X DL hours expected per unit
2) DL cost =
DL required for production (step 1) X hourly rate
Factory overhead cost budget
Estimates cost for each item of FOH needed to support budgeted production
COGS budget
Prepared by integrating:
- DM purchases budget
- DL cost budget
- FOH cost budget
Estimated and desired inventory for DM, WIP, Finished goods must be integrated into COGS budget
Selling and Admin Expenses Budget
Sales budget is used as a starting point. Supported by departmental schedules
Budgeted income statement
Prepared by integrating:
- Sales Budget
- COGS budget
- Selling and Admin expenses budget
summarized the budgeted operating activities of the company. Allows mgmt. to assess the effects of estimated sales, costs, and expenses on profits for the year
Financial Budgets
Cash Budgets
Capital expenditure budget
Cash Budgets
Estimates the expected receipts (inflows) and payments (outflows) of cash for period of time
Estimated receipts
- Estimated payments
———————————–
cash Inc or Dec
+ cash @ beginning of month
—————————————–
cash @ end of month (balance for next period)
- minimum cash balance
——————————————–
excess (deficiency)
Capital expenditures Budget
Summarizes plans for acquiring fixed assets
- are necessary for fixed assets as they wear out or become obsolete
- purchasing additional fixed assets may be necessary to meet increasing demand for company’s product
- prepared for 5 - 10 years in future
Budgeted Balance Sheet
Prepared based on operating and financial budgets of the master budget
