Unit 5 Flashcards
Purpose of Master Budget
blueprint for coming periods operations
framework for changes in plans if events don’t happen as planned
Basic process for Master Budget
determine how much production must occur to meet projected revenue/products sold
determine materials, workers, other costs of meeting planned production level
Master Budget description, alternate name
integrated group of detailed budgets that outline operating and financing plans for a period of time
aka annual plan
Specific budgets included in master budget, in what order of completion
Sales budget/forecast
Production budget
Direct Materials, Labor, Manufacturing
Income Statement and Balance Sheet (Pro Forma)
uncontrollable external factors affecting sales
Business environment (government, demographics) Customer needs/tastes Competition actions seasonal cycles natural disasters
quantitative forecasting models
growth rate derived from last year’s sales
two most significant values in sales budget
sales volume (unit sales) cash collections from customers
General process for developing production budget
add projected sales to desired ending inventory
subtract beginning inventory
Direct Materials budget
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
Direct Labor budget
schedule of labor requirements for budget period
Mfg overhead budget
all production costs besides labor and materials
estimate annual variable and fixed mgf overhead costs
Selling and Admin Expense Budget
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
Organizational Segment definition, alternate names
parts of company requiring separate reports for evaluating management
aka group, division, product line, subsidiary
Decentralized company definition
managers have authority to make decisions for operations they are responsible for
Responsibility accounting definition
system where managers are accountable for certain costs, revenues, assets
2 important behavioral considerations in responsibility accounting
manager should be involved in developing plans for unit they control
manager should be held accountable only for items the have substantial control over
Responsibility center definition
unit a manager has control over and is accountable for
Cost center definition
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
Profit center definition
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
Investment center definition
unit where a manager has control over and is accountable for cost, revenue performance and assets
high level in org chart
Segment margin
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
Segment margin statement
profit and loss statement of a segments directly chargeable costs, divided into variable and fixed cost patterns
Direct costs defn
costs directly attributable to a business segment
removing an activity results in costs being eliminated
indirect costs defn, alternate terms
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
controllable costs
costs a manager has direct authority to change
noncontrollable costs
costs a manager does not have direct authority to change
fixed vs variable costs
costs that don’t fluctuate with an activity vs those that do
segment margin ratio
segment margin divided by net sales
measures a segments profitability
how to use segment margins
compare trends over several periods and to similar units
