Chapter 8 Accouting

Responsibility Accounting

A manager should be held responsible for those items-and only those items- that the manager can actually control.

Bonus

Bonuses are based on meeting and exceeding budgets. No bonus is paid unless the budget is met. The bonus often increases when the budget target is exceeded.

Self-imposed budget 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) Motivation is higher when individuals participate in setting their own goals.

Advantages of budgeting

1)Budgets communicate managements plans throughout the organization. 2) Budgets force managers to think about and plan for the future.

A continuous or perpetual budget

A 12 month budget that rolls forward one month as the current month is completed. In other words, one month is added to the end of the budget as each month comes to a close.

Self-imposed or participative budget

A budget which is prepared with the full cooperation and participation of managers at all levels.

Cash Budget

A cash budget is a detailed plan showing how cash resources will be acquired and used.

Budget

A detailed plan for the future that is usually expressed formal quantitative terms. Budgets are used for planning and control.

Manufacturing overhead budget, direct materials budget, direct labor budget.

Which budgets are used to calculate unit product cost.

Direct materials budget

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

Production

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

Planning

Involves developing goals and preparing various budgets achieve those goals.

Control

Involves gathering feedback to ensure that the plan is being properly executed to as circumstances change.

The master budget

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

Production budget, selling and administrative expense budget.

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

The production budget

Lists the number of units that must be produced to satisfy sales needs and and to provide for the desired ending finished goods inventory.

Self-imposed budgeting limitations

May allow lower levels managers to create too much budgetary slack. Because the manager who creates the budget will be held accountable for the actual results, they will have a natural tendency to submit a budget which is easy to attain.

Disbursements

Payments for direct materials, direct labor, and manufacturing overhead costs are all listed in which section of the cash budget.