ACCT 2122 Chapter 8
The amount of goods for resale to be purchased from suppliers during the period is show on the ___ budget
merchandise purchases
Using budget assumptions when preparing the master budget:
makes it easier to answer "what-if" questions
Facing labor shortages or having to hire or lay off workers at awkward times are consequences of:
neglecting to budget the amount of labor time that will be needed
when budgeting sales, the accounts receivable for a certain month is:
the amount of sales which have been scheduled to be collected but haven't been collected yet
A company can consider making investments or repay outstanding principal and interest when:
the cash excess is greater than the minimum required cash balance
The production budget in turn is used to determine ___
the direct materials, direct labor, and manufacturing overhead budgets
The cost of unsold units is computed on ___
the ending finished goods inventory budget
budget
a detailed plan for the future that is usually expressed in formal quantitative terms
sales budget
a detailed schedule showing the expected sales for the budget period. > An accurate sales budget is the key to the entire budgeting process
Which of the following is needed to prepare a sales budget?
The budgeted number of units to be sold
expected total direct labor cost formula:
Units to be produced x time per unit x rate per hour
The cash balances at both the beginning and end of the year may be adequate even though ___
a serious cash deficit occurs at some point during the year
The ending finished goods inventory budget computes the:
cost of unsold units
Planning
involves developing goals and preparing various budgets to achieve those goals
The cash budget ___
is prepared near the end of the master budget process
In a manufacturing company, the ___ budget is prepared right after the sales budget
production
A likely consequence of excessive inventory levels is ___
storage problems
When many companies don't use self imposed budgeting, ___
top managers often initiate the budgeting process by issuing profit targets. > Lower-level managers are directed to prepare budgets that meet those targets, but targets set by top managers may be too high/low since top managers are not in a position to know whether the targets are appropriate. > Low budget creates waste and a high budget causes motivation to suffer due to unrealistic targets
The sales budget influences the ___
variable portion of the selling and administrative expense budget and it feeds into the production budget
production budget
which defines how many units need to be produced during the budget period.
you ___ depreciation from the total selling and administrative expenses on the Selling and Administrative Expense Budget
subtract/less
cash disbursements/cash payments
payments made by a company during a specified period, such as quarter or year. It includes payments made by cash, but also by cash equivalents
The cash budget is composed of four main sections:
1.) The cash receipts section. 2.) The cash disbursements section. 3.) The cash excess or deficiency section. 4.) The financing section.
What is added to the variable selling and administrative expenses to get the total selling and administrative expenses?
Fixed selling and administrative expenses
Budgeted expenses for areas other than manufacturing are shown on the ___ budget.
selling and administrative
Organizations realize many benefits from budgeting, including:
1.) Budgets communicate management's plans throughout the organization. 2.) 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. 3.) The budgeting process provides a means of allocating resources to those parts of the organization where they can be used most effectively. 4.) The budgeting process can uncover potential bottlenecks before they occur. 5.) 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. 6.) Budgets define goals and objectives that can serve as benchmarks for evaluating subsequent performance.
Self-imposed budgets have a number of advantages:
1.) Individuals at all levels of the organization are recognized as members of the team whose views and judgments are valued by top management. 2.) 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. 3.) 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.
Self-imposed budgeting has two important limitations:
1.) Lower-level managers may make suboptimal budgeting recommendations if they lack the broad strategic perspective possessed by top managers. 2.) Second, self-imposed budgeting may allow lower-level managers to create too much budgetary slack.
Which of the following budgets are needed to calculate unit product costs?
> Direct labor budget > Manufacturing overhead budget > Direct materials budget
Direct materials budget
A detailed plan showing the amount of raw materials that must be purchased to fulfill the production budget and to provide for adequate inventories. > prepared after the production requirements have been computed
Manufacturing overhead budget
A detailed plan showing the production costs, other than direct materials and direct labor, that will be incurred over a specified time period.
Direct labor budget
A detailed plan that shows the direct labor-hours required to fulfill the production budget.
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. > usually accompanied by a schedule of expected cash disbursements for merchandise purchases
Self-imposed budget
A method of preparing budgets in which managers prepare their own budgets. These budgets are then reviewed by higher-level managers, and any issues are resolved by mutual agreement.
responsibility accounting
A system of accountability in which managers are held responsible for those items of revenue and cost—and only those items—over which they can exert significant control. > The managers are held responsible for differences between budgeted and actual results.
Each unit requires two pounds of material. Given a desired ending inventory of 20% of next month's production needs. the pounds of material to be purchased in February is:
Each unit requires two pounds of material. Given a desired ending inventory of 20% of next month's production needs. the pounds of material to be purchased in February is:
Experience has shown that 60% of sales are collected In the month of sale and 40% are collected the month after sale. Calculate expected cash collections for the month of March.
March collections will be from sales in March and sales in February (since March is the month after February). Expected cash collections = 60% of March sales ($96,000) + 40% of February sales (360,000)
if desired ending inventory is 25% of next month's sales, the number of units to be produced in March is:
March sales 16,000 + Ending inventory (25% of April sales) 5,000 - Beginning inventory (25% of March sales) 4.000 = 17,000 units to be produced.
cash disbursements
an amount of total ___ that doesn't include cash expenses Ex. total manufacturing overhead - depreciation (the only noncash element) = cash disbursements for manufacturing overhead
cash budget should be broken down into time periods that ___
are short enough to capture major fluctuations in cash balances > While a monthly cash budget is most common, some organizations budget cash on a weekly or even daily basis
The annual master budget file includes the ___ from last year because it is needed for the schedule of expected cash collections.
balance sheet
A budgeted balance sheet is developed using data from the ___ of the budget period and data contained in the various schedules.
beginning
master budget
consists of a number of separate but interdependent budgets that formally lay out the company's sales, production, and financial goals > culminates in a cash budget, a budgeted income statement, and a budgeted balance sheet.
A significant noncash manufacturing overhead cost for many companies is:
depreciation
The success of a budget program also depends on whether top management uses the budget to ___
pressure or blame employees. > Using budgets to blame employees breeds hostility, tension, and mistrust rather than cooperation and productivity. > Unfortunately, the budget is too often used as a pressure device and excessive emphasis is placed on "meeting the budget" under all circumstances. > Rather than being used as a weapon, the budget should be used as a positive instrument to assist in establishing goals, measuring operating results, and isolating areas that need attention.
many companies have employment policies or contracts that ___
prevent them from laying off and rehiring workers as needed
The first line of the direct labor budget consists of the budgeted units expected to be ___ during the period.
produced
S&P Enterprises has scheduled direct material purchases of $100,000 in January. $130,000 in February and $150,000 in March. The company pays for 75% of its purchases in the month of purchase and 25% the month after the purchase. Calculate the expected cash disbursements for the month of February.
February is the month after January so, the company will be paying for 75% of February purchases + 25% of January purchases; February purchases ($130,000 x 75%) $97,500 + January purchases ($100,000 x 25%) $25,000 = $122,500.
compute the absorption unit product cost for the units produced during the budget year is needed for two reason:
1.) help determine cost of goods sold on the budgeted income statement 2.) to value ending inventories on the budgeted balance sheet
The manufacturing overhead budget is based on:
1.) variable overhead cost per direct labor-hour 2.) total fixed overhead per quarter 3.) quarterly depreciation on factory assets
Sperllng Company's master budget shows expected sales of 10,000 units and expected production of 11,000 units for the month of March. Each unit requires 1/2 hour of direct labor. The direct labor rate is $15.00 per hour. Calculate the expected total direct labor cost for the month of March.
Units to be produced x time per unit x rate per hour 11.000 x 1/2 x $15 = $82,500.
Edison Corporation's variable manufacturing overhead rate is $5.00 per direct labor-hour. Total budgeted fixed overhead is $25,000 per month. The $25,000 per month includes $7,000 in depreciation expense. Total budgeted direct labor-hours for the month of July is 20,000. Budgeted cash disbursements for manufacturing overhead for July equals
Variable overhead (20,000 x $5.00) $100,000 + fixed overhead $25,000 - non-cash (depreciation) expenses $7.000 = $118,000.
Companies that neglect the budgeting process run the risk of ___
facing labor shortages or having to hire and lay off workers at awkward times. > Erratic labor policies lead to insecurity, low morale, and inefficiency.
the quarter column of the production budget is calculated:
in reference to the quarter as a whole > Ex. beginning inventory is the beginning inventory of the first month and ending inventory is the ending inventory of the last month
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
Control
involves gathering feedback to ensure that the plan is being properly executed or modified as circumstances change
The direct labor requirement for each quarter is computed by ___
multiplying the number of units to be produced in each quarter by the amount of direct labor-hours required to make one unit
The disbursements section of the cash budget includes ___ types of cash disbursements
six
if a cash budget if prepared by quarter, the beginning cash balance for the year is the same as the beginning cash balance for the ___ quarter and the ending cash balance for the year is the same as the ending cash for the ___ quarter.
> 1st > 4th
Which of the following is needed to calculate raw materials to be purchased on the direct materials budget?
> Raw materials required per unit > Beginning inventory of raw materials
Because the manager who creates the budget will be held accountable for actual results that deviate from the budget, the manager will have a natural tendency to ___
submit a budget that is easy to attain (i.e., the manager will build slack into the budget). > For this reason, budgets prepared by lower-level managers should be scrutinized by higher levels of management. > Questionable items should be discussed and modified as appropriate. > Without such a review, self-imposed budgets may fail to support the organization's strategy or may be too slack, resulting in suboptimal performance.
all other parts of the master budget depend on ___
the sales budget > If the sales budget is inaccurate, the rest of the budget will be inaccurate. > The sales budget is based on the company's sales forecast, which may require the use of sophisticated mathematical models and statistical tools that are beyond the scope of this course
continuous/perpetual budget
12-month budget that rolls forward one month (or quarter) as the current month (or quarter) is completed > In other words, one month (or quarter) is added to the end of the budget as each month (or quarter) comes to a close. > This approach keeps managers focused at least one year ahead so that they do not become too narrowly focused on short-term results.
