ACG 2071 Chapter 9
Profit center
managers are accountable for both revenues and cost
Investment center
managers are responsible for generating revenue, controlling cost, and efficiently managing the divisions assets.
The operating budgets culminate in the budgeted
Income Statement
Budget committees
Often used by companies to review submitted budgets, make revisions as needed, and approve the final budgets.
Fact...
Only debit card transaction fees are limited by law
Cost center
A responsibility center in which managers are accountable for cost only
Revenue center
A responsibility center in which managers are accountable primarily for revenues
Operating budget
Budgets needed to run the daily operations of the company
Which budget reflects the company's plans to invest in new property, plant, and equipment?
Capital expenditures budget
Benefits of budgeting include
Coordination and communication, planning, and benchmarking
Which of the following budgets is unique to merchandising companies?
Cost of Good Sold, Inventory, and purchases budget
Which of the following are non cash expenses that will always result in differences between the budgeted operating expenses for a given period and the budgeted cash payments for the same period?
Depreciation Expense and Bad Debt Expense
The comprehensive planning document for the entire organization is called
The master budget
Fact... of Merchants that accept payments made by Visa, MasterCard, and other forms of plastic..
Transaction fees should be budgeted for in the operating expenses budget.
Zero-based budgeting
When an organization builds its budgets from the ground up
Flexible budget
a budget prepared for a different level of volume than that which was originally anticipated.
Rolling budget
a budget that is continuously updated by adding months to the end of the budgeting period
Participative budgeting
a budgeting process that begins with departmental managers and flows up through middle management to top management
performance report
compares actual revenues and expenses against budget figures
Residual Income (RI)
determines whether a division has created any excess income above and beyond managements expectations.
Safety stock
extra inventory of finished goods that is kept on hand in case demand is higher than predicted or problems in the factory slow production
Direct fixed expenses
fixed expenses that can be traced
Common fixed expenses
fixed expenses that cannot be traced
Capital turnover
focus efficiently the division uses its assets to generate sales revenue
Budgeted balance sheet
forecasts the company's position at the end of the budget period
Financial budget
include the capital expenditures budget and cash budget. It culminates in a budgeted balance sheet
Strategic planning
involves setting long term goals that may extend 5 to 10 years into the future. It culminates in a budgeted income statement
Favorable variance
is one that causes operating income to be higher than budgeted. This occurs when actual revenues are higher than budgeted, or actual expenses are lower than budgeted.
Unfavorable variance
is one that causes operating income to be lower than budgeted. This occurs when actual revenues are lower than budgeted, or actual expenses are higher than budgeted.
Return on Investments (ROI)
measures the amount of income an investment center earns relative to the size of it assets.
Goal congruence
occurs when the goals of the segment managers align with the goals of top management.
Segment Margin
operating income generated by a profit or investment center before subtracting common fixed costs that have been allocated to the center.
Financial budgets
project both the collection and payment of cash and forecast the company's budgeted balance sheet
Cash budget
projects the cash that will be available to run he company's operations and determines whether the company will have extra funds to invest or whether the company will need to borrow cash.
Strategic planning
setting long-term goals that may extend several years into the future
Sales margin
shows how much operating income the division earns on every dollar of sales revenue
Capital Expenditures Budget
shows the company's plan for purchasing property, plant, and equipment.
Variance
the difference between actual and budgeted figures and is used to evaluate how well the manager controlled operations during the period
Management by exception
the managers will only investigate budget variances that are relatively large.
Production budget
used to forecast how many units should be made to meet the sales projections
The order of the Master Budget
1. Sales Budget 2. Production Budget 3. Direct Materials Budget 4. Budgeted Income Statement 5. Cash Payments Budget 6. Combined Cash Budget 7. Budgeted Balance Sheet
Slack
Manages would sometimes build it into their budgets to protect themselves against unanticipated expenses
Which of the following budgets must be prepared first, as it serves as a basis for most other budgets?
Sales Budget
Master budget
is the comprehensive planning document for the entire organization