ACC 202 Ch.9

A budget may be prepare for any period of time but most common is...

1 year, supplemented by monthly/quarterly budgets

Participative budgeting

A budgetary approach that starts with input from lower-level managers and works upward so that managers at all levels participate - lower-level managers have more-detailed knowledge and can provide more accurate estimates of their area

Direct labor budget

Contains the quantity (hours) and cost of direct labor necessary to meet production requirements

Financing section shows...

Expected borrowings and the repayment of borrowed funds plus interest

Required merchandise purchases =

Budgeted COGS + Desired ending merchandise inventory - Beginning merchandise inventory

Non-for-profit entities budget on the basis of _____ rather than on a _______________ basis

cash flows (expenditures and receipts) ; revenue and expenses

Effective budgeting depends on... Budgets based on research and analysis are more likely to result in... Effectiveness of a budget program is directly related to...

sound organizational structure realistic goals that will contribute to the growth and profitability of a company its acceptance by all levels of mgmt

Differences between master budgets of merchandiser and manufacturer are...

Merchandiser uses purchases budget instead of production budget Merchandiser does not use manufacturing budgets of direct materials, direct labor, and manufacturing overhead

Budgetary slack

Occurs when managers intentionally underestimate budgeted revenues or overestimate budgeted expenses in order to make it easier to achieve budgetary goals for their division

Master budget contains 2 classes of budgets:

Operating budgets Financial budgets

Selling and administrative expense budget

Projects anticipated selling and administrative expenses for the budget period - classifies expenses as either variable or fixes

Benefits of budgeting

Requires all levels of management to PLAN AHEAD and formalize goals on a recurring basis Provides DEFINITE OBJECTIVES for evaluating performance at each level of responsibility Creates an EARLY WARNING SYSTEM for potential problems so that mgmt can make changes Facilitates the COORDINATION OF ACTIVITIES within a business Results in the greater MGMT AWARENESS of the entity's overall operations and the impact on operations of external factors MOTIVATES PERSONNEL throughout the org to meet planned objectives

Cash budget

Shows anticipated cash flows - contains 3 sections (cash receipts, cash disbursements, and financing) and the beginning and ending cash balances

Direct materials budget

Shows both the quantity and cost of direct materials to be purchased

Merchandise purchases budget

Shows the estimated cost of goods to be purchased to meet expected sales

Manufacturing overhead budget

Shows the expected manufacturing overhead costs for the budget period - distinguishes between variable and fixed overhead costs

Production budget

Shows the number of units of a product to produce to meet anticipated sales demand

Total direct labor cost =

Units to be produced x Direct labor hours per unit x Direct labor cost per unit

Direct materials units required for production =

Units to be produced x Direct materials units per unit of unit produced

Budgeted income statement

Indicates the expected profitability of operations for the budget period - provides the basis for evaluating company performance - act as a call to action

Budget

A formal written statement of management's plans for a specified future time period, expressed in financial terms

Budget committee

A group responsible for coordinating the preparation of the budget

Disadvantages of participative budgeting

Time-consuming Can foster budgetary "gaming" under budgetary slack

Budgeted balance sheet

A projection of financial position at the end of the budget period - developed from budgeted balance sheet for proceeding year and budgets for current year

Master budget

A set of interrelated budgets that constitutes a plan of action for a specified period of time

Sales budget

An estimate of expected sales revenue for the budget period - derived from sales forecast - prepared by multiplying expected sales unit sales volume for each product by its anticipated unit selling price

Direct materials units to be purchased =

Direct materials units required for production + Desired ending direct materials units - Beginning direct materials units

Cost of direct materials purchases =

Direct materials units to be purchased x Cost per direct material unit

Cash disbursements section shows...

Expected cash payments (less)

Cash receipts sections includes...

Expected receipts from the company's principal sources of revenue (add)

Required production units =

Expected sales units + Desired ending finished goods units - Beginning finished goods units

Financial budgets

Focus primarily on the cash resources needed to fund expected operations and planned capital expenditures - include capital expenditure budget, cash budget, and budgeted balance sheet

Long-range planning

Identifies long-term goals, selects strategies to achieve those goals, and develops policies and plans to implement the strategies - different than budgeting b/c it is longer time pd (5+ yrs), has less emphasis on specific objectives, and has less detail

Operating budgets

The individual budgets that result in the preparation of the budgeted income statement - establish goals for the company's sales and production personnel

Sales forecast

The projection of potential sales for the industry and the company's expected share of such sales