Accounting 202 Exam 3
Following are selected accounts from a manufacturing company. For each account, indicate whether it will appear on a budgeted income statement or a budgeted balance sheet. If it will not appear on either label neither. 1. Sales 2. Office salaries expense 3. Accumulated depreciation 4. Sales commissions expense 5. Interest expense on loan 6. Cash dividends paid 7. Accounts payable 8. Cost of goods sold
1. Income statement 2. Income statement 3. Balance sheet 4. Income statement 5. Income statement 6. Neither 7. Balance sheet 8. Income statement
For each of the following indicate yes if the item is an important budgeting guideline or no if it is not. 1. Employees should have the opportunity to explain differences from budgeted amounts. 2. Budgets should include budgetary slack. 3. Employees impacted by a budget should be consulted when it is prepared. 4. Goals in a budget should be set low so targets can always be reached. 5. Budgetary goals should be attainable.
1. Yes 2. No 3. Yes 4. No 5. Yes
For each of the following indicate yes if it describes a potential benefit of budgeting or no if it describes a potential negative outcome of budgeting. 1. Budgets help coordinate activities across departments. 2. A budget forces managers to spend time planning for the future. 3. Some employees might overstate expenses in budgets. 4. Budgets can lead to excessive pressure to meet budgeted results. 5. Budgets can provide incentives for good performance.
1. Yes 2. Yes 3. No 4. No 5. Yes
Companies must use ______ for external & tax reporting
Absorption costing
Costing required by GAAP for external reporting purposes
Absorption costing
Costing that can result in misleading product cost info & poor managerial decisions
Absorption costing
Fixed overhead is included in product costs
Absorption costing
For setting the target price, _________ is useful because it reflects the full costs that a selling price must exceed for the company to be profitable.
Absorption costing
Type of costing that adds direct materials, direct labor, & both variable & fixed overhead in product costs
Absorption costing
Income statement that does not separate expenses into variable & fixed components
Absorption costing income statement
The actual amount paid to acquire the actual direct material/labor used during the period
Actual price (AP)
The actual amount of direct material/labor used to manufacture the actual quantity of output
Actual quantity (AQ)
Preliminary cash balance
Beg cash balance + budgeted cash receipts - budgeted cash payments
Formal statement of a company's plans in dollars
Budget
Compare budgeted results with actual results
Budget reports
Management's use of budgets to see that planned objectives are met
Budgetary control process
A budgetary cushion used to meet performance targets
Budgetary slack
Shows budgeted amounts for assets, liabilities, & equity as of the end of the budget period
Budgeted balance sheet
A report that shows predicted revenues & expenses for a budgeting period
Budgeted income statement
Shows budgeted sales & expenses for the budget period
Budgeted income statement
Total required units
Budgeted sales in units + Desired ending inventory in units
Process of planning future business actions & expressing them as formal plans
Budgeting
Budget that reports expected cash receipts & cash payments related to the sale & purchase of plant assets
Capital expenditures budget
Budget that shows budgeted cash receipts & cash payments during the budget period
Cash budget
Helps determine financing needs
Cash budget
Preparing budgets for a selected number of future periods & revising those budgets as each period is completed
Continuous budgeting
Income statement that separates variable & fixed costs & highlights contribution margin
Contribution margin income statement
Budget that shows total manufacturing costs for goods expected to be sold in the period
Cost of goods sold budget
Difference btwn actual & standard cost
Cost variance
If units produced is greater than units sold, will cost of goods sold under absorption costing increase or decrease?
Decrease due to a lower production cost per unit.
Budget that shows budgeted costs for direct materials necessary to satisfy estimated production for the period
Direct Materials Budget
Budget that shows budgeted costs for the direct labor that will be needed to satisfy the estimated production for the period
Direct labor budget
T or F: Fixed overhead from depreciation in the FOH budget does require a cash payment.
F
Budget that shows the budgeted costs for factory overhead that are needed to complete the estimated production for the period
Factory overhead budget
Actual cost < standard cost
Favorable variance
When actual income is higher than budgeted income
Favorable variance (F)
2 options for preparing a master budget
Fixed Flexible
Budget based on 1 predicted amount of sales or other activity measure
Fixed budget
Formula to compute difference in income between absorption costing income & variable costing income
Fixed overhead in ending FG inv - Fixed overhead in beg FG inv
Budget based on more than 1 amount of sales or other activity measure
Flexible budget
Budget that reports those expenses expected during the budget period
General & Administrative expense budget
Income levels differ between the costing methods when ___________ change
Inventory levels
Managers focus attention on the most significant differences between actual costs & standard costs
Management by exception
A comprehensive plan that consists of several budgets that are linked
Master budget
Formal, comprehensive plan that contains several interconnected budgets
Master budget
Is fixed overhead from depreciation in the cash budget?
No
Employees affected by a budget help in preparing it
Participatory budgeting
Shows budgeted amounts, actual amounts, & variances
Performance report
The master budget ends with this
Preparation of budgeted financial statements
Difference btwn actual price per unit of input & standard price per unit of input results in a price (or rate) variance
Price variance
2 main factors that cause direct materials & direct labor variances
Price variance & Quantity variance
Budget that shows units to produce each period
Production budget
Difference btwn actual quantity of input used & standard quantity of input that should have been used results in a quantity (or efficiency) variance
Quantity variance
When the company revises entire set of budgets by adding new quarterly budget to replace the quarter just elapsed
Rolling budget
Continuous budgets are applied by preparing _________
Rolling budgets
Contribution margin
Sales - variable costs
Budget that shows the units of goods to be sold or services to be provided
Sales budget
The master budget begins with this
Sales budget
The usual starting point in the master budget process
Sales budget
Budget that shows types & amounts of selling expenses expected during the budget period
Selling expense budget
Only accept special orders if _______ exceeds _______
Special order price; variable costs
Preset costs for delivering a product or service under normal conditions
Standard costs
The expected level of performance
Standard costs
The standard amount of input for the actual quantity of output
Standard quantity (SQ)
Standards for direct labor are set by _____________ studies that show the direct labor hours required under normal operations
Time & motion
Total budgeted costs
Total fixed costs + (Total variable cost per unit x Units of activity)
Units to produce
Total required units - Beginning inventory units
Actual cost > standard cost
Unfavorable variance
When actual income is lower than budgeted income
Unfavorable variance (U)
Materials to be purchased
Units to produce x Materials required per unit + Desired ending materials inventory - Beginning materials inventory
Includes direct materials, direct labor, & variable overhead costs for units sold
Variable cost of goods sold
Type of costing that adds direct materials, direct labor, & variable overhead
Variable costing
Type of costing that can't be used for external financial reporting
Variable costing
Type of costing that is useful for managerial decisions
Variable costing
Difference between budgeted & actual amounts
Variance
When should a company accept a special order?
When sales exceed variable costs
Standards for direct materials are set by studying the _________, ____________, & ___________ for each material used
quantity, grade, & cost
Overhead standards are set by studying the _________________ needed to support ______________-
resources; production activities
Income under absorption costing & income under variable costing differ whenever the _____ differ from _____-
units produced; units sold
Inventory levels change when ______ do not equal _____
units produced; units sold