chapter 8

Which of the following statements is NOT correct concerning the Cash Budget? A) It is not necessary to prepare any other budgets before preparing the Cash Budget. B) The Cash Budget should be prepared before the Budgeted Income Statement. C) The Cash Budget should be prepared before the Budgeted Balance Sheet. D) The Cash Budget builds on earlier budgets and schedules as well as additional data.

A

Which of the following statements is NOT correct concerning the Manufacturing Overhead Budget? A) The Manufacturing Overhead Budget shows only the variable portion of manufacturing overhead. B) The Manufacturing Overhead Budget shows the expected cash disbursements for manufacturing overhead. C) The Manufacturing Overhead Budget is prepared after the Sales Budget. D) The Manufacturing Overhead Budget provides a schedule of all costs of production other than direct materials and labor costs.

A

Master budget sequence

1. Prepare sales budget 2. Develop production budget 3. Direct Materials Budget 4. Direct Labor Budget 5. MOH Budget 6. Selling and administrative expense budget 7. Cash budget

The cash budget is composed of four main sections:

1. The cash receipts section.(he receipts section lists all of the cash inflows, except from financin) 2. The cash disbursements section.(summarizes all cash payments that are planned for the budget period) 3. The cash excess or deficiency section. 4. The financing section.

Budget Steps

1. sales 2. variable expenses of selling and administrative 3. Production budget (determines the DM, DL, and MOH budgets) 4. The master budget concludes with the preparation of a cash budget, income statement, and balance sheet.

A continuous or perpetual budget

12-month budget that rolls forward one month (or quarter) as the current month (or quarter) is completed. In other words, one month (or quarter) is added to the end of the budget as each month (or quarter) comes to a close. This approach keeps managers focused at least one year ahead so that they do not become too narrowly focused on short-term results.

The number of units to be produced in a period can be determined by adding the expected sales to the desired ending inventory and then deducting the beginning inventory. True False

True

self-imposed budget or participative budget

a budget that is prepared with the full cooperation and participation of managers at all levels.

cash budget

a detailed plan showing how cash resources will be acquired and used (last step of master budget)

Responsibility Accounting

a manager should be held responsible for those items—and only those items—that the manager can actually control to a significant extent.

The 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.

master budget

consists of a number of separate but interdependent budgets that formally lay out the company's sales, production, and financial goals. The master budget culminates in a cash budget, a budgeted income statement, and a budgeted balance sheet

Budget

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

Direct Materials Budget

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

he cost of unsold units is computed on the

ending finished goods inventory budget

Balance sheet of master budget ________________________

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

Planning Budget

involves developing goals and preparing various budgets to achieve those goals.

Control Budget

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

Manufacturing Overhead Budget

lists all costs of production other than direct materials and direct labor.

A detailed schedule of planned expenses that will be incurred in areas other than manufacturing during a budget period.

lists the budgeted expenses for areas other than manufacturing.

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.

Production budget problem

number of units a company would have to manufacture sales Cogs add desired end inv less beg inv

Cost of merchandise purchases

sales Cogs add desired end inv less beg inv