Chapter 8

Continuous or perpetual budget

A 12-month budget that rolls forward one month (or quarter) as the current month (or quarter) is completed. This keeps managers focused at least one year ahead so that they do not become too narrowly focused on short-term results

Self-imposed or participative budget

A budget that is prepared with the full cooperation and participation or managers at all levels

Budget

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

Cash budget

A detailed plan showing how cash resources will be acquired and used

Master budget concludes with the preparation of _______, ___________, and ___________

Cash budget, income statement, and balance sheet

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

Direct materials budget

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

___ feeds into the production budget

Sales budget

The final schedule of the master budget is the _________

balance sheet, which estimates a company's assets, liabilities, and stockholders equity at the end of a budget period

Planning involves...

developing goals and preparing various budgets to achieve those goals

Control involves...

gathering feedback to ensure the plan is being properly executed or modified as circumstances change

Sales budget influences the variable portion of the ____________ budget

selling and administrative expense

2 big picture insights on the master budget

1. The budget is designed to answer 10 key questions 2. The budget schedules are based on various estimates and assumptions

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

Production budget

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

Budgets are used for 2 distinct purposes:

Planning and control

__________ is used to determine the direct materials, direct labor, and manufacturing overhead budgets

Production budget

Budgeted income statement

Provides an estimate of net income for the budget period and it relies on information from the sales budget, ending finished goods inventory budget, selling and administrative expense budget, and the cash budget

The first step in the budgeting process is preparing a ___________

Sales budget

Responsibility accounting

The basic idea underlying responsibility accounting is that a manager should be held responsible for those items-- and only those items--that the manager can actually control to a significant extent