Chp 8 & 9

Unfavorabl activity variances may not indicate bad performance because:

Increased activity should result in higher variable costs.

The cash budget:

Is prepared near the end of the master budget process

More accurate estimates and higher motivation are generally the result of using a _____ budget.

Participative

Budgets are used for two distinct purposes:

Planning and control

What is the first step in the budgeting process?

Preparing a sales budget

In a manufacturing company, the ____ budget is prepared right after the sales budget.

Production

The budgeted income statement does not rely on information from the _____ budget.

Production

The direct labor budget is based on the ______ budget.

Production

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

Production budget Selling and administrative expense budget

True or false: a spending variance is the difference between how much a product should have been and the actual cost given the actual level of activity.

True

Companies use the ______ ______ cycle to evaluate and improve performance.

Variance analysis

Continuous (Perpetual) Budget

A 12 month budget that rolls forward one month as the current month is completed.

Ending finihsed goods inventory budget

A budget showing the dollar amount of unsold finished goods inventory that will appear on the ending balance sheet.

Self-imposed (Participative) Budget

A budget that is prepared with the full cooperation and participation on 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.

Direct labor budget

A detailed plan showing the direct labor hours required to satisfy the production budget.

Direct materials budget

A detailed plan showing the raw materials that must be purchased to fulfill the production budget and to provide for adequate inventories.

Manufacturing overhead budget

A detailed plan that lists all costs of production other than direct materials and direct labor.

Sales budget

A detailed schedule showing expected sales expressed in both dollars and units.

Master budget

A number of separate but interdependent budgets that formally lay out the company's sales, production, and financial goals.

The difference between a revenue or cost item in the planning budget and the same item in the flexible budget at the actual level of activity is an ______ variance.

Activity

The receipts section of the cash budget lists:

All cash inflows, except from financing

Master budget schedules:

Are based on estimates and assumptions Answer several key questions for a company

Common errors in preparing performance reports include:

Assuming all costs are variable Assuming all costs are fixed

To prepare a budgeted balance sheet as of December 31, 2016, data is needed from the:

Balance sheet as of December 31, 2015

Which of the following is needed to calculate raw materials to be purchased on the direct materials budget?

Beginning inventory of raw materials Raw materials required per unit

The final schedule of the master budget is the:

Budgeted balance sheet

Which of the following budgets shows the company's planned profit and serves as a becnhmark against which subsequent company performance can be measured?

Budgeted income statement

A cost center's performance report does not include:

Net operating income Revenue

A significant noncash manufacturing overhead cost for many companies is:

Depreciation

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

Direct materials

True or false: Activity variances help managers understand why actual net income differs from what it should have been at the actual level of activity.

False

True or false: The amount under the Year column in the cash budget always equal the sum of the amount for months or quarters of the budget.

False

Estimates of what revenues and costs should have been based on the actual level of activity are shown on the _________ budget.

Flexible

An estimate of what revenue and costs should have been, based on the actual level of activity is shown on a...

Flexible budget

Options to create a favorable revenue and spending variance include:

Increase operating efficiency Reduce the prices of inputs Protect the selling price

True or false: Fixed costs are often more controllable than variable costs.

True

Because of fixed costs, net operating income does not change in proportion to changes in the level of activity which is the ____ effect.

Leverage

Using budget assumptions when preparing the master budget:

Makes it easier to answer "what-if" questions

The concept that focuses on important variances and ignores trivial ones is:

Management by exception

Which of the following budgets are needed to calculate unit product costs?

Manufacturing overhead budget Direct materials budget Direct labor budget

An essential management tool that communicates management's plans throughout the organization, allocates resources, and coordinates activities is called the ______ budget.

Master

Highly achievable budget targets:

May generate greater management commitment to the budget Are used in most companies May help build manager confidence

Nonprofit organizations:

May have revenue sources that are fixed Usually have significant funding sources other than sales

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

May still have cash deficiency isues during the year.

The amount of goods to be purchased from suppliers during the period is shown on the _____ budget

Merchandise pruchases

Using a budget to blame or pressure employees to do a better job leads to...

Mistrust

Variances are more accurate when using:

Multiple cost drivers

The difference between what the total sales should have been, given the actual level of activity for the period, and the actual total sales is a ___________ variance.

Revenue

To understand why actual net operating income differs from what it should have been at the actual level of activity, the _______ variances should be analyzed.

Revenue and spending

Both the production and selling and administrative expense budgets are prepared using information directly from the __________ budget.

Sales

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

Sales price per unit

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

Selling and administrative

An unchanged planning budget is known as a ______ planning budget.

Static

A likely consequence of excessive inventory levels is:

Storage problems

Responsibility accounting

The basic idea that a manager should be held responsible for those items that the manager can actually control to a significant extent.

Planning

The process of establishing goals and specifying how to achieve them

Control

The process of gathering feedback to ensure that a plan is being properly executed or modified as circumstances change

Borrowing money is required whenever:

There is a cash deficiency The cash excess is less than the minimum required cash balance

Budgetary slack occurs when a manager submits a budget that is...

Too easy to attain

In companies that do not use a self-imposed budgeting process, profit targets are generallt set by...

Top managers