ch 7 connect

purpose of budget

coordinate efforts establish goals motivate people

direct labor budget

# of working hours required to satisfy the production budget is shown on

davids cooperations master budget shows expected direct labor cost of 90,000 for the month of may. during May, the company's expected sales equal 12000 units and expected production is 15,000 units. if each unit requires 1/2 hour of direct labor, the budgeted direct labor rate is

$12 per hour budgeted production = 15,000 units x 1/2 hour or 7,500 required labor hours. $90,000/7,500 = 12

collections on credit sales made to customers in prior periods + collections on sales made in the current budget period

cash collection

not found in financing section of cash budget

cash deficiency

amount of goods for resale to be purchased from suppliers during the period is shown on

merchandise purchases budget

facing labor shortages or having to hire or lay off workers at awkward times are consequences of

neglecting to budget the amount of labor time needed

type of budget keep managers 1 year ahead so don't become to narrowly focused on short term goals.

perpetual and continuous

cash budget

prepared near the end of master budget process

first line of DL Budget consists of the budgeted units expected to be

produced during period

directly based on information from sales budget

production and selling and admin budget.

`direct labor budget based on

production budget

not used to prepare cash budget

production budget

prepared right after the sales budget in manufacturing company

production budget

what budget is prepared directly after the sales budget in a manufacturing company

production budget

4 major sections in cash budget

receipts, disbursements, cash excess or deficiency, and financing

holds managers accountable for revenues and costs

responsibility accounting

the production and selling admin. expense budgets are prepared using info directly from

sales budget

budget prepared with the full cooperation of management at all levels is a ___ budget

self imposed or participative

budget expenses for areas other than manufacturing are shown on the

selling and administrative budget

production budget

shows the numbers of units that must be made to satisfy sales needs and provide the desired ending inventory

what is needed to prepare sales budget

the budgeted numbe of units to be sold

first step in budgeting process

the preparation of the sales budget

companies that do not use self imposed budget process, profit targets are generally set up

top managers

edison corporations variable manufacturing overhead rate is $5.00 per DLH. Total budgeting fixed overhead is 25,000$ per month. the $25,000 per month includes 7,000 in depreciation expense. total budgeting DLH for the month of jULY is 20,000. budgeted cash disbursements for man. OH for july =

variable overhead ($20,000 x 5.00) $100,000 + fixed overhead 25,000$ - non cash (depreciation) expenses $7,000 = 118,000

budgetary slack

when a manager creates a budget that is too easy to attain

budget

-coordinates the activities of the entire organization by integrating the plans of various parts -force managers to think of future define goals and objectives that can serve as benchmark for evaluating performance

S & P enterprises has scheduled DM purchases of $100,000 in january, $130,000 in february and $150,000 in march. the company pays for 75% of its purchases in the month of purchase and 25% the month after purchase. calculate the expected cash disbursements for the month of february

122,500 feb is month after jan so company will pay 75% of february purchases + 25% of january purchases. feb purchases (130,000 x 75%)=97,500 + january purchases (100,000 x 25%)= 25,000 add both

using budget assumptions for master budget

make it easy to answer what if questions

abcs inc expected sales for the first 6 months of year january-12k feb-15k march-16k april-20k may-22k june-25k if desired ending inventory is 25% of next months sales, the number of units to be produced in march is

17,000 march sales 16k + ending inventory (25% of april sales) 5000-beg inv. (25% of march sales) 4000 = 17,000 units to be produced

carter production inc required production for the first 6 month of the year month & production jan-50k feb-70k march-85k april-105k may-110k june-120k each unit requires two pounds of material. Given a desired ending inventory of 20% of next months production needs. the pounds of material to be purchased in april is

212,000 april production needs (105,000 x 2) 201,000+ end. inv. (20% of may production needs: 110,000 x 2 x 20%) =44,000 - beg. inv. (20% of april) 42,000=212,000 lbs

madisons coorporation expected beg. cash balance is 35,000. Cash collections are budgeted at $50,000 and cash disbursments are estimated to be $80,000. the minimum required cash balance is 20,000 and the company can borrow as much as needed in increments of 10,000. calculate the expected ending cash balance

35,000+ 50,000-80,000=5,000. since they can borrow in increments of 10,000 they must borrow 20,000 to meet or exceed the minimum cash balance making the ending balance 25,000

desired end. raw materials inv. for the year is the same as desired end. inv. for the

4th qtr

needed to calculate unit product costs

DL budget, DM budget, MOH budget

Control

Gathering feedback to ensure that the plan is being followed

manufacturing overhead budget

all costs of production other than direct materials and direct labor are shown

master budget schedules

are based on estimates and assumptions answer several key questions for a company

to prepare budgeted balance sheet as of dec 31, 2012, data is needed from

balance sheet as of december 31, 2011

needed to prepare sales budget

beg. # of units to be sold

needed to calculate raw materials to be purchased on the direct material budget

beg. inventory or raw materials raw materials required per unit ending finished goods inventory

most common significant noncash manufacturing overhead cost in most companies

depreciation

planning process

developing goals and preparing various budgets to achieve those goals is part of

in a manufacturing company, the ___ budget details the raw materials that must be purchased to fulfill the production budget and provide for adequate inventories

direct materials

cost of unsold units is computed on the

end. finished goods inv. budget

to calculate raw materials to be purchase on the DM budget, add the desired _____ inv. of raw materials to the raw materials needed based on the ______ budget and ____ the beg. inv. of raw materials to arrive at raw materials to be purchased

ending production deduct

master budget

essential management tool that communicates management plans throughout the organization, allocates resources, and coordinates activities

what is added to the variable selling and admin. expenses to get the total selling and admin. expenses

fixed selling and admin. expense

operation budget

generally cover a one year period

insufficient inventory levels =

high cost last minute production efforts and lost sales