Planning - Budgeting and analysis Flashcards
Tactical plans are also called
Single-use plans - they apply to specific circumstances during specific times
A type of single-use plan that translates the strategic plan and implementation into a period-specific operational guide is called
an annual budget
The budget committee is charged with
- resolving disputes
- making final decisions regarding major budget changes
Guidelines for the annual budget preparation should consider the company’s
strategic goals and long-term plan
Per unit budgets are known as
Standard
Ideal standards represent costs that result from
perfect efficiency and effectiveness. No provision is made for normal spoilage or downtime
Currently attainable standards represent costs that result from
work performed by employees with appropriate training and experience but WITHOUT extraordinary effort. Provisions ARE made for spoilage and downtime
A disadvantage of using ideal standards is that employees may feel that the standards are
unattainable and are therefore discouraged.
Standards set exclusively by management are known as _____ standards
Authoritative.
Standards set by both management and the individuals who are held accountable to those standards are known as _____ standards
Participative
Plans that document specific short-term operating performance goals for a period are known as a
master budget or annual business plan (also called static budgets)
True or false: Master budgets are comprised of only financial budgets
False; they are comprised of both operating AND financial budgets
True or false: Master budgets are prepared in anticipation of achieving a SINGLE LEVEL OF SALES VOLUME
True
The _____ budget is the foundation of the entire budget process
Sales
Sales forecasts are derived from input received from numerous organizational resources, including?
- opinions sales staff
- statistical analysis of correlation b/w sales and economic indicators
- opinions of line management
Sales forecasts consider factors including:
- past patterns of sales
- sales force estimates
- general economic conditions
- competitors’ actions
- changes in the firm’s prices
- changes in product mix
- results of marketing research studies
- advertising and sales promotion plans
The production budget is make up of the amounts spent for
- direct labor
- direct materials
- factory overhead
Formula for budgeted production:
Budgeted sales
+ desired ending inventory
- beginning inventory
= budgeted production
Desired levels of inventory (on production budget) seek to balance
risk of stock-outs (lost sales) with cost of maintaining inventory (carrying costs)
Direct Materials to be purchased formula:
Units of DM needed for production period
+ desired EI @ end of period
- BI @ beginning of period
= Units of DM to be purchased for period
Direct Materials Usage Budget formula:
BI @ cost
+ Purchases @ cost
- EI @cost
= DM usage
Cash budgets are generally divided into these three major sections:
- cash available
- cash disbursements
- financing
Flexible budgets allow for adjustments or changes in
production or sales (activity)
Planned cost (flexible budget) calculation:
Standard costs * actual activity = planned cost
DM Price Variance Formula
Actual Quantity Purchased * (Actual Price - Standard Price) = DM Price Variance
DM Quantity Usage Variance Formula
standard price * (actual quantity used - standard quantity allowed) = DM Quantity Usage Variance
DL Rate Variance Formula
Actual hours worked * (actual rate - standard rate) = DL Rate Variance
DL Efficiency Variance Formula
standard rate * (actual hours worked - standard hours allowed) = DL Efficiency Variance
mnemonic for three-way variance
SEV
S - Spending
E - Efficiency
V - Volume
What are the two steps in applying MOH when standard costing is used?
Step 1: Calculated OH rate = Budgeted OH Costs / Estimated Cost Drivers
Step 2: Applied OH = Std cost driver for actual activity level * OH rate (from step 1)
(ABA BSA) the BA in three-way variance =
Budgeted FOH + (actual DLH worked * std VOH rate per DLH)
(ABA BSA) the BS in three-way variance =
Budgeted FOH + (std DLH allowed for output * std VOH rate per DLH)
Sales Price Variance =
(Actual SP per unit - Budgeted SP per unit) * actual units sold
Sales Volume Variance =
(Actual units sold - Budgeted units sold) * Std CM per unit
mnemonic for strategic business units (SBUs)
CRPI C - Cost R - Revenue P - Profit I - Investment
Financial Scorecards must be:
- Accurate and Timely
- Understandable
- Specific (accountability by segment)
The controllable margin represents the difference between the CM and
controllable fixed costs (those that managers can impact in less than one year)
mnemonic for Balanced Scorecard
FICA
F - Financial (profit)
I - Internal business proccesses (efficient production)
C - Customer satisfaction (market share)
A - Advancement of innovation and human resource development (learning and growth / retention of key employees)
when do you use Learning curve analysis ?
Learning curve analysis is used to determine increases in efficiency or production as experience is gained. Both products have long production runs, making learning curve analysis the best method for estimating the cost of the competitive bid.
when do you use expected value analysis ?
Expected value analysis represents the long- term average of repeated trials and is found by multiplying the probability of each outcome by its payoff and then summing the results.
When do you use Continuous probability simulation?
Continuous probability simulation is a procedure that studies a problem by creating a model of the process and then, through trial and error solutions, attempts to improve the problem solution.
Which of the following budgets provides information for preparation of the owner’s equity section of a budgeted balance sheet?
a. Sales budget.
b. Capital expenditures budget.
c. Cash budget.
d. Budgeted income statement.
Choice “d” is correct. The budgeted income statement produces anticipated accrual basis net income or loss and is added to beginning owner’s equity to generate the owner’s equity section of the budgeted balance sheet.
Choice “a” is incorrect. The sales budget is the starting point for all operating and cash flow budgets but does not directly provide information for preparation of the owner’s equity section of the budgeted balance sheet.
A firm develops an annual cash budget in order to:
a. Support the preparation of its cash flow statement for the annual report.
b. Ascertain which capital expenditure projects are feasible and which capital expenditure projects should be deferred.
c. Avoid the opportunity costs of noninvested excess cash and minimize the cost of interim financing.
d. Balance the noncash and cash activities of the company.
Choice “c” is correct. The main reason for preparing a cash budget is to anticipate cash flows so that excess cash can be invested and to minimize the need for interim financing.
Controllable margin is used as a refined measure of strategic business unit reporting that is best described as:
Controllable margin is computed as contribution margin net of controllable costs. Controllable costs represent those fixed costs that managers can impact in less than one year.
