Managerial Cost Accounting - ch. 8

Benefits of self-imposed budgeting

Individuals at all levels of the organization are recognized as members of the team whose views and judgments are valued by top management. Budget estimates prepared by front-line managers are often more accurate and reliable than estimates prepared by top managers who have less intimate knowledge of markets and day-to-day operations. Motivation is generally higher when individuals participate in setting their own goals than when the goals are imposed from above. Self-imposed budgets create commitment. A manager who is not able to meet a budget that has been imposed from above can always say that the budget was unrealistic and impossible to meet. With a self-imposed budget, this claim cannot be made.

cash budget

a detailed plan showing how cash resources will be acquired and used over a specific time period

Production Budget

a detailed plan showing the number of units that must be produced during a period in order to satisfy both sales and inventory needs

merchandise purchases budget

a detailed plan used by a merchandising company that shows the amount of goods that must be purchased from suppliers during the period

To determine the production needs, ________________.

add the budgeted unit sales to the desired finish goods inventory THEN deduct the beginning finished goods inventory units.

required borrowings on a cash budget is calculated by:

adding the desired ending cash balance to the amount of the cash deficiency.

A production budget is prepared ____________.

after preparing the sales budget.

A direct materials budget is prepared _____________.

after the production requirements have been computed.

The production budget is prepared to _________________.

ascertain the number of units needed to satisfy the sales needs and to maintain a desired level of ending finished goods inventory.

Planning

involves developing goals and preparing various budgets to achieve those goals

Control

involves gathering feedback to ensure that the plan is being properly executed or modified as circumstances change

continuous or perpetual budget

is a plan that is updated monthly or quarterly, dropping one period and adding another.

The selling and administrative expense budget

lists the budgeted expenses for areas other than manufacturing.

The calculation of unit product cost requires information from the ____________ budget.

manufacturing overhead.

Operating budgets ordinarily cover a _________________.

one year period corresponding to the company's fiscal year

Budgets are used for two distinct purposes ______________.

planning and control

The cash budget uses information from several other budgets except the __________________.

production budget

The budgeting process ends with the preparation of the ______ budget.

cash

Information from the sales budget, selling and administrative expense budget, and the manufacturing cost budgets all influence the preparation of the ________________.

cash budget

In a budgeted income statement, _________ is subtracted from sales to arrive at gross margin.

cost of goods sold

Limitations of self-imposed budgeting

1. it may allow lower-level managers to create budgetary slack. 2. lower-level managers may create sub-optimal budgeting recommendations if they lack the broad strategic perspective possessed by top managers.

master budget

A number of separate but interdependent budgets that formally lay out the company's sales, production, and financial goals and that culminates in a cash budget, budgeted income statement, and budgeted balance sheet.

Parts of the Master Budget

A sales budget, including a schedule of expected cash collections. A production budget (a merchandise purchases budget would be used in a merchandising company). A direct materials budget, including a schedule of expected cash disbursements for purchases of materials. A direct labor budget. A manufacturing overhead budget. An ending finished goods inventory budget. A selling and administrative expense budget. A cash budget. A budgeted income statement. A budgeted balance sheet.

Benefit of budgeting

Budgets communicate management's plans throughout the organization. Budgets force managers to think about and plan for the future. In the absence of the necessity to prepare a budget, many managers would spend all of their time dealing with day-to-day emergencies. The budgeting process provides a means of allocating resources to those parts of the organization where they can be used most effectively. The budgeting process can uncover potential bottlenecks before they occur. Budgets coordinate the activities of the entire organization by integrating the plans of its various parts. Budgeting helps to ensure that everyone in the organization is pulling in the same direction. Budgets define goals and objectives that can serve as benchmarks for evaluating subsequent performance.

why operating budgets generally span a period of one year?

Companies choose a span of one year to correspond to their fiscal years.

_________________ is a major factor that should be taken into consideration while planning the desired level of inventories

Costs of carrying inventory

The annual master budget file includes the ___________ from last year because it is needed for the schedule of expected cash disbursements.

balance sheet

The final schedule of the master budget is the ______________.

balance sheet, which estimates a company's assets, liabilities, and stockholders' equity at the end of a budget period.

For a production budget, the ______ is the beginning inventory for the year.

beginning inventory for the first quarter

In a direct materials budget, the desired ending raw materials inventory for the year is equal to the ________.

desired ending raw materials inventory for the last period

Budgets needed to calculate unit product costs are ____________, ____________ and ______________.

direct materials budget, direct labor budget and manufacturing overhead budget.

The purpose of preparing a direct materials budget is to ________.

estimate the quantity of raw materials to be purchased

A company's planned net profit that serves as a benchmark against which subsequent company performance can be measured is shown on the budgeted ___ ___.

income statement

The system of accountability in which managers are held responsible for those items of revenue and costs—and only those items—over which they can exert significant control is referred to as ________.

responsibility accounting

Both the production and selling and administrative expense budgets are prepared using information directly from the ____ budget:

sales

The budgeting process begins with the preparation of the ______ budget.

sales

The budgeted income statement provides an estimate of net income for the budget period and it relies on information from the ________________.

sales budget, ending finished goods inventory budget, selling and administrative expense budget, and the cash budget.

A merchandise purchases budget is usually accompanied by a ________________.

schedule of expected cash disbursements for merchandise purchases

variable selling and administrative expenses are calculated by multiplying the budgeted units ____________ by the variable selling and administrative expense per unit.

sold

The sales budget influences __________________.

the VARIABLE portion of the selling and administrative expense budget and it feeds into the production budget.

If a cash deficiency exists during any budget period or if there is a cash excess during any budget period that is less than the minimum required cash balance,

the company will need to borrow money.

The direct materials budget details

the raw materials that must be purchased to fulfill the production budget and to provide for adequate inventories.

A company determines that the number of units sold is the cost driver for its variable selling and administrative expense budget. The product of its variable selling and administrative rate and budgeted unit sales will be ________.

total budgeted variable selling and administrative expenses

The budgeted balance sheet is developed

using data from the balance sheet from the beginning of the budget period and data contained in the various schedules.