ACC Chapter 9

Operating Budgets

needed to run daily operations of the company; culminate in the budgeted income statement. Examples are Sales Budget and Production Budget

Budget Committees

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

Financial Budget

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

Combined Cash Budget

Merges the budgeted cash collections and cash payments to project the company's ending cash position.

Zero-based budgeting

a budgeting approach in which each department starts from zero every year and must justify every item in the budget, rather than simply adjusting the previous year's budget amounts

In what order would you prepare the following budgets? Is that budget an operating or financial budget? Budgeted Balance Sheet Cash Payments Budget Direct Materials Budget Production Budget Budgeted Income Statement Combined Cash Budget Sales 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

Flexible Budget

Are prepared for different volumes of activity.

Slack

Built into a companies budget to protect themselves against unanticipated expenses or lower revenues

Rolling Budget

a budget that is continuously updated by adding months to the end of the budgeting period. The next 12 months of operations are always budgeted

Participative Budgeting

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

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 down production.

Master Budget

the comprehensive planning document for the entire organization

Variance

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

Strategic Planning

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

Production Budget

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