Unit 5

Question 1

Purpose of Master Budget

Answer 1

blueprint for coming periods operations

framework for changes in plans if events don’t happen as planned

Question 2

Basic process for Master Budget

Answer 2

determine how much production must occur to meet projected revenue/products sold
determine materials, workers, other costs of meeting planned production level

Question 3

Master Budget description, alternate name

Answer 3

integrated group of detailed budgets that outline operating and financing plans for a period of time
aka annual plan

Question 4

Specific budgets included in master budget, in what order of completion

Answer 4

Sales budget/forecast
Production budget
Direct Materials, Labor, Manufacturing
Income Statement and Balance Sheet (Pro Forma)

Question 5

uncontrollable external factors affecting sales

Answer 5

Business environment (government, demographics)
Customer needs/tastes
Competition actions
seasonal cycles
natural disasters

Question 6

quantitative forecasting models

Answer 6

growth rate derived from last year’s sales

Question 7

two most significant values in sales budget

Answer 7

sales volume (unit sales)
cash collections from customers

Question 8

General process for developing production budget

Answer 8

add projected sales to desired ending inventory

subtract beginning inventory

Question 9

Direct Materials budget

Answer 9

projected cost for materials needed to meet production budget
materials to be used and purchased in budget period
based on starting materials, projected needs, desired level of ending inventory

Question 10

Direct Labor budget

Answer 10

schedule of labor requirements for budget period

Question 11

Mfg overhead budget

Answer 11

all production costs besides labor and materials

estimate annual variable and fixed mgf overhead costs

Question 12

Selling and Admin Expense Budget

Answer 12

non-production expenditures
- office supplies
- salaries of managers, executives
- depreciation of admin buildings
usually divided into multiple categores ie R&D, design, marketing, distribution, customer service

Question 13

Organizational Segment definition, alternate names

Answer 13

parts of company requiring separate reports for evaluating management
aka group, division, product line, subsidiary

Question 14

Decentralized company definition

Answer 14

managers have authority to make decisions for operations they are responsible for

Question 15

Responsibility accounting definition

Answer 15

system where managers are accountable for certain costs, revenues, assets

Question 16

2 important behavioral considerations in responsibility accounting

Answer 16

manager should be involved in developing plans for unit they control
manager should be held accountable only for items the have substantial control over

Question 17

Responsibility center definition

Answer 17

unit a manager has control over and is accountable for

Question 18

Cost center definition

Answer 18

unit where a manager has control over and is accountable for cost only
no responsibility for assets or revenues
lower level in org chart
ie manufacturing unit

Question 19

Profit center definition

Answer 19

unit where a manager has control over and is accountable for cost and revenue performance
usually mid level in org chart
produce and market goods/services
manager of restaurant

Question 20

Investment center definition

Answer 20

unit where a manager has control over and is accountable for cost, revenue performance and assets
high level in org chart

Question 21

Segment margin

Answer 21

measure of a manager of a profit center
based on revenues and costs
sales - variable costs = contribution margin
CM - direct(controllable) fixed costs = SM
difference between sales and revenue

Question 22

Segment margin statement

Answer 22

profit and loss statement of a segments directly chargeable costs, divided into variable and fixed cost patterns

Question 23

Direct costs defn

Answer 23

costs directly attributable to a business segment

removing an activity results in costs being eliminated

Question 24

indirect costs defn, alternate terms

Answer 24

costs that cannot be assigned to a particular segment (i.e. wages at corporate level)
aka common/joint costs
costs that remain after an activity is eliminated

Question 25

controllable costs

Answer 25

costs a manager has direct authority to change

Question 26

noncontrollable costs

Answer 26

costs a manager does not have direct authority to change

Question 27

fixed vs variable costs

Answer 27

costs that don’t fluctuate with an activity vs those that do

Question 28

segment margin ratio

Answer 28

segment margin divided by net sales

measures a segments profitability

Question 29

how to use segment margins

Answer 29

compare trends over several periods and to similar units