MA 2 Budgeting - Master and cash budgets Flashcards
Which budget is created first?
Sales
Which budget is created after sales? What are the steps to determine production needs?
Production. Budgeted sales + desired ending inventory = total needs. Less beg inventory = required production.
After production budget what is next? How to calculate DM needs?
DM, DL and MOH budgets. DM = production of units + desired ending inv = total needs. minus beg inv equals total purchases.
Does MOH include fixed and variable MOH costs?
Yes
How to calculate COGM budget
sum of budgeted costs from DM, DL and MOH budgets. DM = opening inv + purchases - closing inv
How to calculate budgeted COGS?
Total COGM, plus cost of beginning inv - cost of desired ending inventory
COGS formula
Opening inv Add : purhcases Less: closing = material used in production Add DL Add MOH = COGM Add : op FG Less : cl FG = COGS
Direct vs indirect cash budget
Direct = net inflows and outflows are compiled to arrive at net change in cash Indirect = net income starts, then add back non-cash
Formula for cash conversion cycle. What does a positive and a negative balance mean?
Inventory holding period + A/R collection period - A/P payment period.
If positive, company is net loss cash position.
If negative, company has excess cash
Operating cycle formula
Inventory holding period + A/R collection period
3 uses of excess cash
Pay down short-term or long-term debt
Invest in short-term deposits
Distribute to shareholders in form of dividends or share repurchases
Two factors to address when presenting cash budgets
- based on forecasts so might not be realized
- assess the factors which are uncertain and their effect on the cash budget using sensitivity analysis - which factors may have the most impact
