Ch 8 Master Budgeting

Companies divide their budget year

by dividing the years into quarters and then into months as the year progresses.

insufficient inventory levels

can lead to lost sales or last-minute, high-cost production efforts.

ending finished goods inventory budget

computes the cost of unsold units

budgeted income statement

does not rely on information from the production budget.

direct labor budget

is based on the production budget

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 -The finale schedule of the master budget

Unit product cost

is needed to determine cost of good sold and to value ending inventory. DL budget, DM budget and MOH budget are needed to calculate this cost.

cash budget

is prepared near the end of the master budget process. The beginning cash balance for the year is the same as the beginning cash balance for the 1st quarter and the ending cash balance for the year is the same as the ending cash for the 4th quarter.

excessive inventory levels

likely tie up funds and create storage problems_.

budget assumptions

makes it easier to answer "what-if" questions when preparing the master budget.

A company with adequate cash balances at the beginning and end of the year:

may still have cash deficiency issues during the year.

operating budgets

ordinarily cover a one-year period corresponding to a company's fiscal year. Many companies divide their annual budget into four quarters.

The annual master budget file includes

the balance sheet from last year because it is needed for the schedule of expected cash collections.

limitations of self-imposed budgeting include:

-budgetary slack -suboptimal budget recommendations

Which budgets are needed to calculate unit product costs?

-direct materials budget -direct labor budget -manufacturing overhead budget

Risks of not knowing in advance how much labor time will be needed throughout the budget period includes:

-labor shortages -low employee morale -erratic layoffs

Highly achievable budget targets:

-may generate greater management commitment to the budget -may help build manager confidence -are used in most companies

The purpose of a budget should be to:

-measure operating results -establish goals -isolate areas needing attention

Borrowing money is required whenever:

-there is a cash deficiency -the cash excess is less than the minimum required cash balance

continuous

A 12-month budget that rolls forward one month (or quarter) as the current month (or quarter) is completed is called a(n) _____________________ or perpetual budget.

participative budget

A budget that is prepared with the full cooperation of managers at all levels is a self-imposed or _______.

perpetual

A budget that keeps managers focused at least one year ahead is a continuous or ___________ budget.

income statement

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

budget

A detailed plan for the future that is usually expressed in formal quantitative terms is:

master

A number of separate but interdependent budgets that formally layout a company's sales, production, and financial goals is contained in the ____________ budget.

depreciation

A significant noncash manufacturing overhead cost for many companies is:

control

Gathering feedback to ensure that the plan is being followed and executed or modified as circumstances change is referred to as ___________________.

13,000 units (10,000 + 5,000) - 2,000 = 13,000

Given budgeted sales of 10,000 units, desired ending inventory of 5,000 units, and beginning inventory of 2,000, required production is:

self-imposed budget

a manager cannot complain that the budget was unrealistic and impossible to meet when a ________________ is in place.

schedule of expected cash disbursements

accompanies a merchandise purchasing or manufacturing overhead budgeting budget.

manufacturing overhead

All costs of production other than direct materials and direct labor are shown on the ___________ _______________ budget.

selling and administrative

Budgeted expenses for areas other than manufacturing are shown on the _______________ budget.

$12 per hour (15,000 units x 1/2 hour or 7,500 required labor hours. $90,000/7500 = $12 per hour)

Davidson Corp.'s master budget shows expected direct labor cost of $90,000 for the month of May. During May, the company's expected sales equal 12,000 units and expected production is 15,000 units. If each unit requires 1/2 hour of direct labor, the budgeted direct labor rate is $________ per hour.

planning

Developing goals and preparing various budgets to achieve those goals is part of the ______________.

$6.25 Total MOH/Total budgeted direct labor-hours ($25,000 + (20,000 x $5)/20,000 = $6.25)

Edison Corp.'s variable MOH rate is $5.00 per direct labor-hour. Total budgeted fixed overhead is $25,000 per month. The $25,000 per month included $7,000 in depreciation expense. Total budgeted direct labor-hours for the month of July is 20,000. Based on the month of July only, the predetermined overhead rate is $_____________.

direct materials

In a manufacturing company, the ___________ budget details the raw materials that must be purchased to fulfill the production budget and provide for adequate inventories.

production

In a manufacturing company, the ____________ budget is used to determine the budgets for manufacturing costs, including the direct materials budget, the direct labor budget, and the manufacturing overhead budget.

production

In a manufacturing company, the _____________ budget shows the number of units that must be manufactured to satisfy sales needs and provide for the desired ending inventory.

$25,000 ($35,000 + $50,000)-$80,000 = $5,000. Since they can borrow in increments of $10,000 they must borrow $20,000 to meet or exceed the minimum cash balance making the ending balance $25,000.

Madison Corporation's expected beginning cash balance is $35,000. Cash collections are budgeted at $50,000 and cash disbursements are estimated to be $80,000. The minimum required cash balance is $20,000 and the company can borrow as much as needed in increments of $10,000. Calculate the expected ending cash balance for the month.

February production needs (70,000 x 2) 140,000 + Ending inventory (20% of March production needs: 85,000 x 2 x 20%) 34,000 - Beginning inventory (20% of February) 28,000 = 146,000 pounds.

Month Required Production February 70,000 March 85,000 Each unit required two lbs. of material. Given a desired ending inventory of 20% of next month's production needs, the lbs. of material to be purchased in February is:

cash disbursements

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

$135,000 May is the month after April so, the company will be paying for 75% of May purchases + 25% of April purchases. May purchases ($140.000 x 75%) $105,000 + April purchases ($120,000 x 25%) $30,000 = $135,000

S&P Enterprises has scheduled direct material purchases of $120,000 in April, $140,000 in May and $160,000 in June. 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 May.

merchandise purchases budget

The amount of goods for resale to be purchased from suppliers during the period is shown on the ________ _______________ budget.

manufacturing overhead

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

sales

The first step in the budgeting process is preparing the ____________ budget.

disbursements

The section on the cash budget that summarizes all cash payments that are planned for the budget period is the cash _____________ section.

balance sheet as of December 31, 2016

To prepare a budgeted balance sheet as of Dec 31, 2017, data is needed from the:

responsibility accounting

Under the concept of ___________ ____________, managers should only be held accountable for items they can actually control.

fixed selling and administrative expenses

What is added to the variable selling and administrative expenses to get the total selling and administrative expenses?

cash deficiency

What is not found in the financing section of the cash budget?

required production

What number does the direct materials budget take directly from the production budget?

budgetary slack

When a manager imposes a budget that is too easy to attain ___________ occurs.

Profit targets

When top managers set __________________ ________________ goals may be unrealistically high, waste may occur, and too much slack may be allowed.

Selling and administrative expense budget and Production budget

Which budgets are directly based on information from the sales budget?

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

sales price per unit