Module 3 Flashcards
Participative budgeting
means that the budget preparation begins with the lowest level of management and is adjusted at each level to align with the strategic plan
Pros of Participative budgeting
- lower level management has more detail = more accuracy
2. Lover level management is motivated to meet budgets they helped to create
Cons of Participative budgeting
- too complex and time consuming
2. padding the budget (employees over budget to make themselves look good)
Incremental budgeting means that budget preparation begins with
the budget from last year
Zero-Based budgeting means that budget preparation begins with
$0 every expense is justified or not included
Rolling budgets always includes
12 months of data
Sales Revenue Budget
Calculates:
Formula + Notes:
Relies on info from:
Calculates: expected sales revenue
Formula + Notes: # of units to sell x sales price per unit
Relies on info from: projected unit sales
Production budget
Calculates:
Formula + Notes:
Relies on info from:
Calculates: # of units to produce
Formula + Notes: (# of units to sell) + (# of units in EI) - (# of units in BI) [Snapshot of FG inventory t-accnt in units]
Relies on info from: projected unit sales; ending F/G inventory policy
Direct materials budget
Calculates:
Formula + Notes:
Relies on info from:
Calculates: quantity and cost of direct materials to purchase
Formula + Notes: (# of units to produce) + (# units in EI) - (# units in BI) = Quantity to purchase x Standard price per unit of input [snapshot of the raw materials inventory t-acct in units]
Relies on info from: Production budget; standard DM quantity; standard DM price; Ending R/M inventory policy
Direct labor budget
Calculates:
Formula + Notes:
Relies on info from:
Calculates: direct labor costs
Formula + Notes: (# units to produce) x (DLH per unit) x (wage rate per DLH)
Relies on info from: production budget; standard DL quantity; standard DL price
Manufacturing Overhead Budget
Calculates:
Formula + Notes:
Relies on info from:
Calculates: expected overhead costs
Formula + Notes: (Cost driver) x (Variable MOH Rate) + (Fixed MOH) = Total MOH used for PDMOH Rate - Noncash items = Total MOH cash costs
Relies on info from: Projected use of cost driver
Cash receipts budget
Calculates:
Formula + Notes:
Relies on info from:
Calculates: amount of cash to be collected from customers
Formula + Notes: Calculation depends on cash collection policies (snapshot of A/R t-acct)
Relies on info from: Sales Rev Budget
Cash Payments Budget
Calculates:
Formula + Notes:
Relies on info from:
Calculates: Amount of cash to be paid to suppliers for purchases
Formula + Notes: Calculation depends on cash collection policies (snapshot of A/P t-acct)
Relies on info from: Direct materials budget
Static / Master Budget prepared for
one level of sales volume at the beginning of a period
Flexible budgets prepared for
any level of sales volume within relevant range
Actual formula
AP x AQ x AV
Hybrid formula
SP x AQ x AV
Flexible Budget Formula
SP x SQ x AV
Master budget formula
SP x SQ x BV
Volume refers to
units sold/produced
Quantity refers to
input used
Flexible budget variance
Did we properly control costs or manage revenue?
(Actual Cost per unit - Standard Cost per unit) x Actual volume
–On pitchfork = Flexible - Actual
* Gives most info about cost control
Sales Volume Variance
Did we sell more or less than originally projected?
(Act Vol - Budgeted Vol) x Standard Cost per unit
No info about cost controls
–On Pitchfork = Master - Flexible
Standard costs help to even further refine the variance analysis by
identifying whether we under/over paid or were efficient/inefficient with our resources
Price/Spending Variance
Did we pay too much or too little compared to the standard price?
(AP - SP) x AQ
–On pitchfork = Actual - Hybrid
Quantity / Efficiency variance
did we use too much or too little compared to the standard quantity?
(AQ - SQ) x SP
–On pitchfork = Hybrid - Flexible
Master Budget Variance
On pitchfork = Actual - Master
Who is responsible for a direct material price variance?
purchasing manager
Who is responsible for direct materials quantity variance?
production supervisor
Who is responsible for direct labor rate variance?
HR manager
Who is responsible for direct labor efficiency variance?
Production Supervisor
