Chapter 8
Continuous or perpetual budget
A 12-month budget that rolls forward one month (or quarter) as the current month (or quarter) is completed. This keeps managers focused at least one year ahead so that they do not become too narrowly focused on short-term results
Self-imposed or participative budget
A budget that is prepared with the full cooperation and participation or 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
Master budget concludes with the preparation of _______, ___________, and ___________
Cash budget, income statement, and balance sheet
Master budget
Consists of a number of separate but interdependent budgets that formally lay out the company's sales, production, and financial goals. Culminates in a cash budget, a budgeted income statement, and a budgeted balance sheet
Direct materials budget
Details the raw materials that must be purchased to fulfill the production budget and provide for adequate inventories
___ feeds into the production budget
Sales budget
The final schedule of the master budget is the _________
balance sheet, which estimates a company's assets, liabilities, and stockholders equity at the end of a budget period
Planning involves...
developing goals and preparing various budgets to achieve those goals
Control involves...
gathering feedback to ensure the plan is being properly executed or modified as circumstances change
Sales budget influences the variable portion of the ____________ budget
selling and administrative expense
2 big picture insights on the master budget
1. The budget is designed to answer 10 key questions 2. The budget schedules are based on various estimates and assumptions
Sales budget
A detailed schedule showing the expected sales for the budget period. An accurate sales budget is the key to the entire budgeting process
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
Budgets are used for 2 distinct purposes:
Planning and control
__________ is used to determine the direct materials, direct labor, and manufacturing overhead budgets
Production budget
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
The first step in the budgeting process is preparing a ___________
Sales budget
Responsibility accounting
The basic idea underlying responsibility accounting is that a manager should be held responsible for those items-- and only those items--that the manager can actually control to a significant extent