Financial Planning Flashcards
What is a Maser Budget?
-Budget targeted with specific leval of activity for the company as a whole -Includes budgets for Operations, Financial, Capital Expenditure, and Cash Flows. A master budget is also static.
What is a Static Budget?
Budget targeted for a specific segment of a company. Budget does not change (NOT flexible)
What is a Flexible Budget?
Budget that is adjusted when actual sales deviate from planned sales. Helps analyze actual results compares to expected results. Most frequently used for mfg & sales
What is an Operating Budget?
The operating budget forecasts the results of operations:
- Sales budget
- Production budget
- Production cost budgets (direct materials, labor, and overhead budgets)
- Selling and administrative expense budget
What is a Financial Budget?
The financial budget forecasts cash flows and projects the financial statements that will result from operations.
1) Cash Budget
2) Budgeted I/S
3) Budgeted B/S
What is a capital expenditure budget?
The capital expenditures budget projects expenditures related to the acquisition or construction of capital (fixed) assets. Since acquisition of capital assets often requires an extended planning horizon, the capital expenditures budget often spans multiple fiscal periods.
What is a Participary Budget?
Allow subordinates to participate in establishing budget targets. Widely considered a positive behavioral approach, participative budgeting can (1) increase the accuracy of the budget by providing additional information that subordinates bring to the table, and (2) increase perceptions of ownership of the budget targets on behalf of the subordinates.
What is a strategic Budget?
Implies a long-range view to planning based on the identification of action plans to achieve the company’s goals and, ultimately, its mission. Many issues are considered, including a comprehensive internal and external analysis, competitive and economic analysis, and an assessment of various types of risk. Note that strategic budgets are easy to detect since terminology is always oriented to the “big-picture” (e.g., long-range, inside and outside the organization, large investments, economics, competitive opportunities/threats, assessment of distinctive competencies, and market risks).
What is a rolling budget?
Is an incremental budget that adds the current period and drops the oldest period. Kaizen (continuous improvement) type companies typically use rolling budgets and de-emphasize past performance in budgeting since results are “expected” to continuously improve.
What is a zero based budget?
Is a process of starting over each budget period and justifying each item budgeted. This requires additional work over an incremental approach but may provide more accuracy. This process forces managers to carefully think about their expenditures in hopes of reducing or eliminating the cost of unnecessary items.
What is budgetary slack?
Occurs when managers attempt to build in a cushion for spending and revenue in case targets are not met. The use of slack results in a conservative budget as opposed to the most probable or accurate budget. The risk of managers building slack into their budgets is increased where budget targets are used in evaluation of individual performance and incentive compensation.
How do Fixed Costs affect budgeting?
Costs independent of the level activity within the relevant range Property Tax is the same whether you produce 100-000 units or zero units However - Fixed Costs per unit vary given the amount of activity If you produce fewer units- fixed costs per unit will be greater than if you produce more units - i.e. less units to spread the cost over
How do Variable Costs affect budgeting?
The more Direct Materials or Direct Labor used- the more Variable Costs per unit However - Variable Costs per unit don’t change with the level of activity like Fixed Costs per unit
How are Material Variances calculated?
SAM: Standard Material Costs - Actual Material Costs = Material Variance
How are Labor Variances calculated?
SAL Standard Labor Costs - Actual Labor Costs = Labor Variance
