Module 4 Flashcards
Who sets the goals of a firm?
Board of Directors
Who executes the goals of a firm?
Firm’s executive team
These include organizational structures, policies, strategies, standards, and operating procedures.
Managerial Techniques
This is a detailed plan for acquiring and using financial and other resources over a specified time period.
It represents the firm’s plans for the future expressed in quantitative terms.
Budget
This is the act of preparing a budget.
Budgeting
This is the use of budget to control a firm’s activities.
Budgetary control
This brings together ideas, forecasts, resource availability and financial realities to create a course of action to achieve the firm’s goals and objectives.
The planning process
This opens the lines of communication within the firm (a) up and down
organizational lines of subordinates and superiors and (b) across organizational lines to integrate
functional tasks. It entails coordinating the activities of the various parts of the firm and ensuring
that the parts are in harmony with each other.
The budgeting process
This refers to a firm’s striving to achieve a common set of objectives.
Goal congruence
This serves as a fiscal disciplinarian and helps ensure that managers
understand their authority, responsibility and limitations.
Budget system
This involves developing objectives and preparing various budgets to achieve those objectives.
Planning
This refers to the steps taken by management to increase the likelihood of attaining the objectives set in the planning stage and that all parts of the organization are working together toward that goal.
Control
This long range planning defines the firm’s mission, the long rage goals, and strategic plan.
Strategic planning process
Creating the annual business plan is the task of evaluating the firm’s strengths and weaknesses, opportunities and tactics to build firm wide
priorities for the coming year. Each manager also develops a personal set of goals and a plan of achievements that are consistent with the firm’s business plan.
Business plan and personal goal setting
This includes when to start the process,
submit budgets, review and approve budgets at various management levels – answers who, what and when.
Business schedule
A planning and control system that combines responsibility centers, control reports, activity centers and cost drivers from activity based
costing.
Responsibility accounting system
Rewards are given to managers who achieve their unit’s budget goals and or MBO targets. Tying performance to compensation is becoming an increasingly common practice.
Reward system
Ability to evaluate alternative or “what if” scenarios are an expected part of any financial planning system. Simulation can test a plan to assess goal achievement and evaluate alternative actions.
Financial modeling
It is assumed that every manager is involved in planning and
control. Often, budget objectives are set at the executive level but budgets are constructed
from the bottom up – sometimes called as “grass roots” budgeting.
Participatory budgeting
This is based on idealistic conditions and has a small chance of being met.
Stretch level budget
This budget system is challenging but it can be met through hard work.
Highly achievable budget
This budget system projects revenues and costs at different levels of activity. It
separate costs into fixed and variable components and uses standard costing to
prepare budgets at multiple activity levels. Actual costs are compared with budgeted
costs based on actual level of production to obtain and analyze variances.
Flexible budget
This budget system projects revenues and costs at a particular or single level of activity. It does not segregate costs into fixed and variable components. Actual costs
are compared with the budgeted costs regardless of actual level of production, to
obtain and analyze cost variances.
Fixed or static budget
This budget system applies ABC principles and procedures to budgeting. It requires
three steps, namely: identification of activities, estimation of activity output demands and estimating the costs of resources needed to provide the activity output demanded.
Activity based budget
This budget system assumes “continues improvement” of products and processes, the
effects of improvement and the costs of their implementation.
Kaizen Budget
This is the length of time for which a budget is effective.
Budget period
This budget system covers 1 year only, usually divided in quarters or months.
Periodic
This budget system is a 12 month budget that rolls forward one moth or quarter as the current month or quarter is completed.
Continuous
This is a long term budget showing the planned financing, acquisition and
disposal of fixed assets.
Capital budget
In this budget system, a product’s revenues and expenses are estimated over its entire life cycle.
Life cycle budget
This is a budget wherein managers are required to justify all expenditures (costs) as if programs involved are being proposed for the first time.
Zero based budget
This is a budget prepared based on previous period’s
budget, adjusted based on changes expected to happen in the coming period.
Incremental or traditional budget
This budget is a projection of revenues, expenses and results of operations for
a specific period of time.
Operating budget
This is a budget of the financial resources as reflected in the budgeted balance sheet.
Financial budget
This is a budget for significant investments in projects that have long term
implications such as the purchase of property, plant and equipment.
Capital budget
This refers the procedures used in preparing a budget, securing its approval and disseminating it to the firm’s stakeholders.
Budgetary administration
This is also known as management committee or executive committee is a group of key management persons who are responsible for overall policy matters relating to the budget program. It oversees the preparation and administration of the budget.
Budget Committee
This refers to budgeting revenues too low and expenses too high to cover anticipated budget cuts.
Budget slack
This is a method of preparing budget in which managers
prepare their own budgets, reviewed by their superiors and any issues are resolved by mutual agreement. It is generally considered as the most effective method of budget preparation.
A self-imposed or participative budget
This represents the summary of the management’s plans and outlines the way to accomplish these plans.
Master budget
This is a schedule showing the expected sales (amount & units) over a specific time
period. It is “the key” to the budgeting process. It provides the basis for projected cash
receipts as well as for constructing the other budgets such as production, operating
expenses and capital expenditure budget.
Sales Budget
This is a detailed plan showing the number of units that must be produced during
a period to meet both sales and inventory requirements. It becomes the basis for
determining the budgets for direct materials, direct labor and factory overhead which in
turn becomes input for the cash expenditures budget.
Production Budget
This is a detailed plan showing the amount and number of units of raw materials
that must be purchased during a period to meet both production and inventory needs.
Direct materials budget
It is a detailed plan showing labor requirements over specific period of time. Factors
affecting this budget include level of skills of laborers, labor rate per hour, and time
requirements among others.
Direct labor budget
It is a detailed plan showing the production costs, other than direct materials and
direct labor, which will be incurred over specific period of time. Overhead costs can
either be fixed or variable, in which case the level of activity becomes relevant in
computing the total cost.
Manufacturing overhead budget
This is a budget that shows the peso amount of cost expected to appear on the
balance sheet for unsold units at the end of a period.
Ending finished goods inventory budget
It is a budget that shows the number of units and the amount of goods (raw
materials) to be purchased for the period.
Purchases budget
It is a budget that shows the cost of goods manufactured, cost of goods available
at the beginning and end of period, as well as the cost of goods sold for a specific time
period.
Budgeted Cost of Sales
This is a detailed schedule of planned expenses that will be incurred in areas other
than production, over specific time period.
Selling and Administrative Expense budget
It is a detailed plan showing the overall result of operations over a specific time
period.
Budgeted income statement
It is a detailed plan showing how cash resources will be acquired (cash receipts
budget) and used (cash disbursements budget) over specific time period.
Cash budget
It is a budget showing the planned financing, acquisition and disposal of fixed
assets.
Capital expenditure budget
This is a detailed plan of the financial position and condition of the business over a period of time. It is developed by beginning with the current balance sheet and adjusting
it for data contained in other budgets.
Budgeted Balance Sheet
It is similar to the cash budget but sources and uses of cash is specified whether it
is related to operating, investing or financing activities.
Budgeted Cash Flow Statement
This is the desired cash balance that a firm plans to maintain in order to conduct business operations.
Target Cash Balance
This indicates the type of investments to acquire.
Cash surplus
This indicates the external financing requirement.
Cash deficit
