Exam 4

Question 1

Budgeting

Answer 1

Used in Managing Operations

• Establishes Specific Goals
• Executes plans to achieve goals
• Periodically compare actual results with the goals

Question 2

Human Behavior from Budgeting Process

Answer 2

• 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

Question 3

Who develops a Budget?

Answer 3

The budget committee

Question 4

Who comprises a budget committee

Answer 4

• Budget Operator
• Treasurer
• Sales Manager
• Controller
• Production Manager

Question 5

Who monitors and summarizes the budget process?

Answer 5

Accounting Department

Question 6

Static Budget

Answer 6

Shows expected results of a responsibility center for only ONE activity level. Once determined, there are no changes

Question 7

Flexible Budget

Answer 7

Shows expected results of a responsibility center for SEVERAL activity levels. A series of static budgets

Question 8

Steps to construct a flexible budget

Answer 8

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

Question 9

Master Budget

Answer 9

Integrated set of operating and financing budgets for a period of time. Prepared on a yearly basis

Question 10

Sales Budget

Answer 10

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

Question 11

Production Budget

Answer 11

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

Question 12

Direct Materials Budget

Answer 12

Estimates the quantities of direct materials to be purchased to support budgeted production and desired inventory levels.

Question 13

How to determine DM budget

Answer 13

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

Question 14

Direct Labor Budget

Answer 14

Estimates the DL hours and related costs needed to support budgeted production

Question 15

How to determine DL budget

Answer 15

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

Question 16

Factory overhead cost budget

Answer 16

Estimates cost for each item of FOH needed to support budgeted production

Question 17

COGS budget

Answer 17

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

Question 18

Selling and Admin Expenses Budget

Answer 18

Sales budget is used as a starting point. Supported by departmental schedules

Question 19

Budgeted income statement

Answer 19

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

Question 20

Financial Budgets

Answer 20

Cash Budgets

Capital expenditure budget

Question 21

Cash Budgets

Answer 21

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)

Question 22

Capital expenditures Budget

Answer 22

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

Question 23

Budgeted Balance Sheet

Answer 23

Prepared based on operating and financial budgets of the master budget