Accounting 312 Exam 4, Chapter 9. Budget information

participative budgeting

A budgetary approach that start with input from lower level managers and works upward so that managers at all levels participate. A key to having a positive effect on human behavior

Production budget

A combination of DM, DL, and OH budgets. A projection of the units that must be produced to meet anticipated sales. A realistic estimate of ending inventory is essential in scheduling production requirements. Provided the bases for the budgeted costs for each manufacturing cost element.

pro forma

forecasts for the future. A part of the financials section of the master schedule. Looks several years out

progress

Long range planning is used to measure ____________ rather than as a basis for control

A merchandiser uses a merchandise purchase budget instead of a production budget A merchandiser does not use the manufacturing budgets (DM, DL, and OH)

What are the 2 key differences between master budgets for merchandiser and manufacturer?

A sound organizational structure (authority and responsibility for all phases of operations are clearly defined) Based on research and analysis (More likely to result in realistic goals that will contribute to the growth and profitability of a company) Acceptance by all levels of management (Directly related to effectiveness)

What are the essentials of effective budgeting

Formalizing goals by PLANNING ahead on a recurring basis DEFINITE OBJECTIVES provided for evaluating performance at each level of responsibility EARLY WARNING SYSTEM for potential problems Facilitate COORDINATION OF ACTIVITIES within organization Greater MANAGEMENT AWARENESS and overall impact on environment MOTIVATES PERSONNEL to meet objectives

What are the primary benefits of budgeting?

Operating Budgets and Financial Budgets

What are the two classes that make up the master budget?

Cash receipt, cash disbursements, financing

What budgets make up the cash budget?

Cash budget and Pro forma statements

What budgets make up the financial budgets?

DM, DL, OH, and S+A

What budgets make up the operating budgets?

If done well, it can inspire managers to higher levels of performance. If done poorly, budgets can discourage additional effort and pull down the morale of managers. The overall goal is to reach agreement on a budget that is seen as fair and achievable, but also meets corporate goals. This provides position motivation for managers. If this goal is not met and managers view the budget as unfair and unrealistic, they will lose motivation and may be discouraged to work. Participative budgeting is key

What is the effect of budgeting on human behavior?

May be prepared for any length of time and should be long enough to provide an attainable goal under normal business conditions. Budgets are normally made for 1 year. The length is influenced by type of budget, nature of the organization, need for periodic approval, and prevailing business conditions

What is the length of a budget? And what factors influence the length?

Developed within the framework of a sales forecast and is based on: General economic conditions Industry trends Market research studies Anticipated advertising and promotion Previous market share Changes in price Technological developments Some companies us a budget committee to prepare a budget

What is the process of a making an effective budget? What factors is it based on? What is a common way companies go about making a budget?

Sales budget to production and S+A budgets Production to DM, DL, OH (depending on the activity base, order might matter) Budgeted Income statement Cash budget Budgeted balance sheet

What order are the budgets prepared in?

Expected output comes from how many people served/services performed Expected input comes from how many people are needed to staff

Where do service companies get their information from?

Because the information generated by the other budgets dictates the expected inflows and outflows of cash

Why is the cash budget prepared last?

operating budget

Individual budgets that result in a budgeted income statement

Manufacturing overhead budget

Consists of things like property taxes, insurance, utilities, and fixed assets. An estimate of expected manufacturing overhead costs for the budget period. Distinguished between variable and fixed costs (variable are listed first)

operating

The budgeted income statement is the end product of the _________________________ budgets

budget

A formal written statement of management's plans for a specified future time period, expressed in financial terms. Represents the primary method of communicating agreed-upon objectives throughout the organization. Most closely associated with planning

Long range planning

A formalized process of identifying long-term goals, selecting strategies to achieve those goals, and developing policies and plans to implement the strategies.

Cash budget

A projection of anticipated cash flows. Contains 3 sections: cash receipts, cash disbursements, and financing. Often considered the most important financial budget, because cash is so important. Also has the beginning and ending cash balances used to determine if the company needs to borrow funds in the coming period

Selling and administrative expense budget

A projection of anticipated selling and administrative expenses for the budget period. Also classifies expenses as either variable or fixed.

budgeted balance sheet

A projection of financial position at the end of the budget period. Developed from the budgeted balance sheet from the preceding year and the budgets from the current year

Direct labor budget

A projection of the quantity and cost of DL necessary to meet production requirements.

master budget

A set of interrelated budgets that constitutes a plan of action for a specific time period. The largest budget. Encompasses all other budgets

budgeted income statement

An estimate of the expected profitability of operations for the budget period.

Budgeted income statement

An estimate of the expected profitability of operations for the budget period. Provided the basis for evaluating company performance. Often serves as a call to action

Direct Materials Budget

An estimate of the quantity and cost of direct materials to be produced.

expenditures, receipts

In most cases, not-for-profit entities begin the budgeting process by budgeting _______________________ rather than ____________________________

Operating budgets

FG inventory, RM inventory, and retained earning all are based on ________________ ________________________

On the basis of cash flows (expenditures and receipts) rather than on a revenue and expense basis. The starting point is usually expenditures

How do nonprofits use the budget system?

Merchandise purchases budget

The estimated cost of goods to be purchased by a merchandiser to meet expected sales.

sales budget

The most important budget, drives the total budget. Based on historicals and factors like planned marketing promotions. Prepared first, all other budgets depend on this. An estimate of expected sales revenue for the budget period