ACG 2071 Chapter 9

Profit center

managers are accountable for both revenues and cost

Investment center

managers are responsible for generating revenue, controlling cost, and efficiently managing the divisions assets.

The operating budgets culminate in the budgeted

Income Statement

Budget committees

Often used by companies to review submitted budgets, make revisions as needed, and approve the final budgets.

Fact...

Only debit card transaction fees are limited by law

Cost center

A responsibility center in which managers are accountable for cost only

Revenue center

A responsibility center in which managers are accountable primarily for revenues

Operating budget

Budgets needed to run the daily operations of the company

Which budget reflects the company's plans to invest in new property, plant, and equipment?

Capital expenditures budget

Benefits of budgeting include

Coordination and communication, planning, and benchmarking

Which of the following budgets is unique to merchandising companies?

Cost of Good Sold, Inventory, and purchases budget

Which of the following are non cash expenses that will always result in differences between the budgeted operating expenses for a given period and the budgeted cash payments for the same period?

Depreciation Expense and Bad Debt Expense

The comprehensive planning document for the entire organization is called

The master budget

Fact... of Merchants that accept payments made by Visa, MasterCard, and other forms of plastic..

Transaction fees should be budgeted for in the operating expenses budget.

Zero-based budgeting

When an organization builds its budgets from the ground up

Flexible budget

a budget prepared for a different level of volume than that which was originally anticipated.

Rolling budget

a budget that is continuously updated by adding months to the end of the budgeting period

Participative budgeting

a budgeting process that begins with departmental managers and flows up through middle management to top management

performance report

compares actual revenues and expenses against budget figures

Residual Income (RI)

determines whether a division has created any excess income above and beyond managements expectations.

Safety stock

extra inventory of finished goods that is kept on hand in case demand is higher than predicted or problems in the factory slow production

Direct fixed expenses

fixed expenses that can be traced

Common fixed expenses

fixed expenses that cannot be traced

Capital turnover

focus efficiently the division uses its assets to generate sales revenue

Budgeted balance sheet

forecasts the company's position at the end of the budget period

Financial budget

include the capital expenditures budget and cash budget. It culminates in a budgeted balance sheet

Strategic planning

involves setting long term goals that may extend 5 to 10 years into the future. It culminates in a budgeted income statement

Favorable variance

is one that causes operating income to be higher than budgeted. This occurs when actual revenues are higher than budgeted, or actual expenses are lower than budgeted.

Unfavorable variance

is one that causes operating income to be lower than budgeted. This occurs when actual revenues are lower than budgeted, or actual expenses are higher than budgeted.

Return on Investments (ROI)

measures the amount of income an investment center earns relative to the size of it assets.

Goal congruence

occurs when the goals of the segment managers align with the goals of top management.

Segment Margin

operating income generated by a profit or investment center before subtracting common fixed costs that have been allocated to the center.

Financial budgets

project both the collection and payment of cash and forecast the company's budgeted balance sheet

Cash budget

projects the cash that will be available to run he company's operations and determines whether the company will have extra funds to invest or whether the company will need to borrow cash.

Strategic planning

setting long-term goals that may extend several years into the future

Sales margin

shows how much operating income the division earns on every dollar of sales revenue

Capital Expenditures Budget

shows the company's plan for purchasing property, plant, and equipment.

Variance

the difference between actual and budgeted figures and is used to evaluate how well the manager controlled operations during the period

Management by exception

the managers will only investigate budget variances that are relatively large.

Production budget

used to forecast how many units should be made to meet the sales projections

The order of the Master Budget

1. Sales Budget 2. Production Budget 3. Direct Materials Budget 4. Budgeted Income Statement 5. Cash Payments Budget 6. Combined Cash Budget 7. Budgeted Balance Sheet

Slack

Manages would sometimes build it into their budgets to protect themselves against unanticipated expenses

Which of the following budgets must be prepared first, as it serves as a basis for most other budgets?

Sales Budget

Master budget

is the comprehensive planning document for the entire organization