Topic 8 Flashcards
Budgeting is the most widely used
accounting tool to ______and ________ organizations.
plan
control
A budget is the quantitative expression of a _________ of action by management for a future time period and an _____ to the coordination and implementation of the plan.
proposed plan
aid
THE ONGOING BUDGET PROCESS:
- Managers and accountants plan the performance of the company, taking into account ____ performance and anticipated future changes
- Senior managers distribute a set of goals against which ____ results will be compared
- Accountants help managers investigate ______ from budget. Corrective action occurs at this point
- Managers and accountants assess market feedback, changed conditions, and their own _______ as plans are laid for the next budget period
past
actual
deviations
experiences
BUDGETING CYCLE
-- \_\_\_\_\_\_ the performance – Providing a frame of reference (a set of specific \_\_\_\_\_\_\_ against which actual results can be compared) – Investigating \_\_\_\_\_\_\_\_ – \_\_\_\_\_\_\_\_ action – Planning \_\_\_\_\_\_\_
Planning
expectations
variations
Corrective
again
BUDGETS
—> Budgeting is most useful when done as
an ________ part of an organization’s
strategy analysis.
—> Strategy describes how an organization
matches its own capabilities with the
opportunities in the market place to
_______ its overall objectives.
integral
accomplish
ADVANTAGES OF BUDGETING
- –> Provides a framework for __________ performance
- –> ________ managers and other employees
- –> Promotes ________ and _________ among subunits within the company
judging
Motivates
coordination
communication
BUDGETS
Budgeted performance measures can
overcome two key ________ of using
past performance:
1) Past results incorporate past miscues and sub-standard performance.
2) The future may be expected to be very
different from the past.
limitations
MAIN APPROACHES TO BUDGETING
- –> Top Down
- –> Bottom Up
- –> Authoritative
- –> Consultative
- –> __________
Participative
TIME COVERAGE of BUDGETS
—> Usually have a set period (month,
quarter, year) to better _______
—-> Businesses are increasingly using rolling budgets
(continuous budgets) to force management to ________ about the forthcoming 12 months, to ________ ahead FIVE quarters
coordinate
think
look
WHAT is the MASTER BUDGET?
—> It is a comprehensive expression of
management’s operating and financial
plans for a future time period (usually one
year).
—> The master budget embraces the impact of both _____ decisions and ______ decisions.
+ Operating decisions centre on the use of
scarce resources.
+ Financing decisions centre on how to obtain the funds to acquire those resources
operating
financing
OPERATING BUDGET
=>building blocks leading
to the creation of the Budgeted _________
Income Statement
FINANCIAL BUDGET
=>building blocks based on the Operating Budget that lead to the creation of the Budgeted _______ and the Budgeted _____________.
Balance Sheet
Statement of Cash Flows
OPERATING BUDGET
—> The _______ of the operating
budget is the revenue budget.
—> The operating budget ends with
the budgeted _________.
foundation
income statement
BASIC OPERATING BUDGET steps:
- Prepare the Revenues Budget
- Prepare the _________ (in Units)
- Prepare the Direct Materials Usage Budget and Direct Materials Purchases Budget
- Prepare the Direct Manufacturing Labor
Budget - Prepare the Manufacturing Overhead Costs Budget
- Prepare the Ending Inventories Budget
- Prepare the Cost of Goods Sold Budget
- Prepare the _______ (Period
Cost) Budget - Prepare the Budgeted __________
Production Budget
Operating Expense
Income Statement
BASIC FINANCIAL BUDGET steps:
Based on the Operating Budgets:
1. Prepare the Capital _______ Budget
- Prepare the Cash Budget
- Prepare the Budgeted _______.
- Prepare the Budgeted ________________.
Expenditures
Balance Sheet
Statement of Cash Flows
DEMAND FORECAST
—> An organization’s goals provide the ________ and the framework for evaluating the budgeting process
—> To assess the plan’s acceptability, planners _______ the tentative operating plan’s projected financial results with the organization’s financial goals
—> The budgeting process is ________ strongly by the demand forecast
\+ An estimate of sales demand at a specified selling price
starting point
compare
influenced
DEVELOPING the DEMAND FORECAST
Organizations develop demand forecasts in many ways:
—> ________ conducted either by outside experts or by internal sales staff
—> Statistical models to ________ demand forecasts from trends and forecasts of economic activity in the economy and the relation of past sales patterns to this economic activity
- To \_\_\_\_\_\_\_\_ that demand will either grow or decline by some estimated rate over previous demand levels
Market surveys
generate
Assume
IMPORTANCE of SALE PLANS
—–> The sales plans provide the basis for other plans to _______ the necessary factors of production:
+ Labor
+ Materials
+ ___________
+ Cash
—-> Because production plans are _______to the sales plans, most organizations develop budgets on computers.
+ Planners can readily explore the effects of changes in the sales plans on production plans
acquire
Production capacity
sensitive
CASH BUDGET
—> A cash budget shows expected cash receipts and disbursements to ________ the months having cash shortages and excesses.
indicate
Financial-planning software may be employed to ________ sensitivity (“what-if”) analysis to _______ in the budgetary process
conduct
assist
Kaizen Budgeting – incorporating _________ improvement factors in the budgeting process
continuous
Activity-Based Budgeting –
incorporating ___________ in the budgetary process
Activity-Based Costing
Responsibility Accounting – a system that measures the plans, budgets, actions and \_\_\_\_\_\_ results of each Responsibility Center
actual
Revisiting the types of
Responsibility Centers:
- Cost – accountable for costs only
- Revenue – accountable for revenues only
- Profit – accountable for
revenues & costs - Investment – accountable for _______, ________, and
costs
investment
revenues
Controllability is the degree
of _________ that a manager has over costs, revenues, or related items for which he is being held responsible
influence
Responsibility Accounting
focuses on information sharing, not in laying _______ on a particular manager
blame
Budgets offer feedback in the form of _______: actual
results deviate from budgeted targets
variances
Variances provide managers with:
—> Early warning of problems
—> A basis for _________ evaluation
—> A basis for ________ evaluation
performance
strategy
BUDGETING and HUMAN BEHAVIOR
—> The budgeting process may be abused both by
________ and _______, leading to negative outcomes
—> Superiors may dominate the budget process or hold subordinates accountable for events they have no
control over
—> Subordinates may build “budgetary slack” into their budgets
+The practice of underestimating budgeted revenues, or overestimating budgeted expenses, in an effort to make the resulting budgeted goals (profits) more easily attainable
superiors
subordinates
Coordination is ________ and _________ all aspects of production or service and all departments in a company in the best way for the company to ______ its goals.
To force excutive to think about the relationships among individual departments within the company, as well as between the company and their supply chain partners
meshing
balancing
meet
Budgets for company to ______ in an upcoming period.
follow
Strategic plans are expressed through _______ budgets
long-run
Operating plans are expressed via ______ budgets
short-run
Operating decisions deal with how to _____ use the limited resources of an organization.
best
Financing decisions deal with how to ______ the funds to ________ those resources.
obtain
acquire
Communication to ________ those goals
understand
Budget to _______ actual performance against predicted performance.
measure
Budget to help to ______ two limitation of using past performance as a basic to judge actual results.
overcome
Budget to help to ________ information to improve future performance
gather
Probing and learning to _______ performance
improve
Creating a little anxiety to ______ performance
improve
Bottom - up: top managers want lower-level managers to participate in the budgeting process to _______ greater commitment and accountability
create
Management at all levels of a compnay should understand and support the budgets and all aspects of the management control system to _______ the benefits of budgeting to _____ time-consuming
gain
avoid
Top managers must coordinate the efforts of all the firm’s employees from senior excutives through middle levels of management to every supervised worker to ______the goals described in the master budget
attain
Top managers assign a certain amount of responsibility to lower-level managers and then hold them accountable for how they perform to ________ the company’s efforts
coordinate
The maintenance department is a cost center —-> maintance manager is to _____ responsible for cost
be
The sale department is a revenue center —-> sales managers is to ________ responsible for revenue
be
The hotel manager is in charge of profit center —-> to ________ responsibility for both revenue and costs
take
The regional managers take reponsibilities to ___________ the amount to be invested in new hotal projectsand for revenues and costs generated from these investments
determine
A responsibility center can be structured to ________ better alignment of individuals and company goals.
promote
Diffences between actual results and budgeted amounts - called variances to help managers to ________ and _______them in three ways
implement
evaluate
Early warning to ______ corrective actions or ______ the available opportunities.
Performance evaluation : variances help manager to ______ how well the company has implemented its strategies. Were materials and labor used efficiently? Did product warranty costs decrease as planned?
Evaluating strategy: variances to _____ managers that their strategies are ineffective
take
exploit
probe
signal
Budgetary slack is the practice of underestimating budgeted revenues or overestimating budgeted cost to _______ budgeted targets easier to _______.
make
achieve
