Ch. 8

production budget

# of units that must be produced to satisfy sales needs & provide for desired ending finished goods inventory

how to calculate cash excess or deficiency section?

beginning cash balance add cash receipts total cash available less cash disbursements excess (deficiency) of cash available over disbursements

self-imposed (participative) budget

budget prepared with full cooperation of managers at all levels

how to calculate merchandise purchases budget

budgeted COGS add desired ending merchandising inventory total needs less beginning merchandise inventory required purchases

What shows planned profit & serves as a benchmark which performance can be measured?

budgeted income statement

how to calculate production budget

budgeted unit sales add desired units of ending finished goods inv. total needs less units of beginning finished goods inventory required production in units

On the cash budget, what's subtracted from total cash available to find cash excess or deficiency?

cash disbursements

What does the receipts section list?

cash inflows, except from financing, expected during budget period; majority from sales

Most common significant non-cash MO cost is:

depreciation

budget

detailed plan for future, in formal quantitative terms

cash budget

detailed plan showing how cash resources will be acquired & used

planning

developing goals & preparing budgets to achieve goals

The desired ending raw materials inventory for the year is the same as the desired ending inventory for:

fourth quarter

control

gathering feedback to ensure plans properly executed

manufacturing overhead budget

lists all costs of production other than DM & DL

selling & administrative expense budget

lists budgeted expenses for areas other than manufacturing

responsibility accounting

managers held responsible for revenue & cost, and differences between budgeted & actual results

What budgets are directly based on info from the sales budget?

production & selling/admin. expense budget

Direct labor budget is based on...

production budget

Which budget is used for creating DM & DL budget & MO budget?

production budget

To calculate total sales on sales budget, multiply budgeted sales in units by:

sales price per unit

master budget

separate but interdependent budgets that formally lay out company's sales, production & financial goals

ending finished goods inventory budget

shows $ amount of unsold finished goods inventory that appears on ending BS

merchandise purchases budget

shows amount of goods to be purchased from suppliers during period

direct labor budget

shows direct labor hours required to satisfy production budget

Why does unit product cost for the units produced during budget year need to be computed?

1) determine COGS on budgeted IS 2) value ending inventories on budgeted balance sheet

2 limitations of self-imposed budgeting

1) lower-level managers may make suboptimal budgeting recommendations if they lack broad perspective 2) may allow lower-level managers to create too much budgetary slack

direct materials budget

1) prepared after production requirements have been computed 2) details raw materials that must be purchased to fulfill production budget & provide for adequate inventories

cash budget is composed of 4 major sections

1) receipts section 2) disbursements sections 3) cash excess or deficiency section 4) financing section

advantages of budgeting

1. they communicate management's plans 2. forces managers to think & plan for future 3. provides means of allocating resources 4. uncover bottlenecks 5.coordinates activity by integrating plans 6. define goals for benchmarks

continuous (perpetual) budget

12 month budget that rolls forward 1 month as current month completed

sales budget

1st step in budgeting process; detailed schedule showing expected sales for budget period

What budgets are needed to calculate unit product costs?

DM, DL, & MO budgets

Required borrowings on a cash budget is calculated by:

adding desired ending cash balance to amount of deficiency

What does the disbursements section summarize?

all cash payments planned for budget period; includes raw materials purchases, DL payments, MOH costs etc