Accounting 102 Chapter 8

A budgeted balance sheet is developed using data from the ___________ of the budget period and data contained in the various schedules.

beginning

When a manager creates a budget that is too easy to attain,

budgetary slack occurs

A company's planned net profit that serves as a benchmark against which subsequent company performance can be measured is shown on the

budgeted income statement

Inventories should be

carefully planned

he master budget culminates in a

cash budget, a budgeted income statement, and a budgeted balance sheet.

The cash disbursements section summarizes all

cash payments that are planned for the budget period These payments include raw material purchases, direct labor payments, manufacturing overhead costs, and so on, as contained in their respective budgets.

Ending finished goods inventory budget is the

cost of unsold units is computed on the ending finished goods inventory budget

Excessive inventories tie up funds and

create storage problems

Note the production requirements are influenced by the

desired level of the ending finished goods inventory.

A budget is a

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

Cash budget is a

detailed plan showing how cash resources will be acquired and used. Info from the sales budget, selling and admin expense budget, and manufacturing cost budgets all influence the preparation of this budget.

Sales budget is 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 is used to

determine the direct materials, direct labor, and manufacturing overhead budgets.

Planning involves...

developing goals and preparing various budgets to achieve those goals

Absorption product cost includes

direct materials, direct labor, manufacturing overhead

The cash budget is prepared near the

end of the master budget process

A merchandise purchase budget is usually accompanied by a schedule of

expected cash disbursements for merchandise purchases. The format of this schedule mirrors the approach used for the schedule of expected cash disbursements for purchases of materials

Companies that neglect the budgeting process run the risk of

facing labor shortages or having to hire and lay off workers at awkward times.

Control involves...

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

If a cash excess during any budget period is greater than the minimum required cash balance, the company can

invest the excess funds or repay principal and interest to lenders.

Advantages of self-imposed budgets

- It shows respect for their opinions when lower-level managers are involved in the budgeting process. - Budget estimates prepared by front-line managers are often more accurate than estimates prepared by top managers. - Motivation is generally higher when individuals participate in setting their own goals than when the goals are imposed from above. - It empowers them to take ownership of the budget and to be accountable for deviations from it.

From a planning standpoint, organizations use budgets to....

1. Encourage managers to think about and plan for the future. 2. Communicate financial goals throughout the organization. 3. Allocate resources within the organization where they can be used most effectively. 4. Coordinate the plans and activities of departmental managers. 5. Uncover potential bottlenecks before they occur.

From a control standpoint, organizations compare their budgets to actual results to:

1. Improve the efficiency and effectiveness of operations. 2. Evaluate and reward employees.

The Cash Budget is composed of 4 main sections:

1. cash receipts section 2. cash disbursements section 3. cash excess or deficiency section 4. financing section

Madison Corporation's expected beginning cash balance is $35,000. Cash collections are budgeted at $50,000 and cash disbursements 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 for the month.:

25,000

Total sales on the sales budget equation

= Sale price per unit x budgeted sales in units

Master budget

A number of separate but interdependent budgets that formally lay out the company's sales, production, and financial goals

The production budget is prepared

AFTER the sales budget

Production needs can be determined as follows

Budget unit sales + desired units of ending inventory = Total needs Total needs- units of beginning finished goods inventory = required units of production

format of the merchandise purchases budget

Budgeted costs of goods sold + desired ending merchandise inventory = Total needs - beginning merchandise inventory = Required purchases

Which of the following budgets shows the company's planned profit and serves as a benchmark against which subsequent company performance can be measured?:

Budgeted income statement

The top line of a merchandise purchases budget based on units would say

Budgeted unit sales instead of Budgeted cost of goods sold

T/F: For most companies a single, annual cash budget is sufficient.

False

T/F: The amounts under the Year column in the cash budget always equal the sum of the amounts for the months or quarters of the budget.

False

Selling and Administrative expense budget...

Lists the budgeted expenses for areas other than manufacturing.

What is subtracted from the total budgeted selling and administrative expenses to determine the cash disbursements for selling and administrative expenses?

Noncash expenses

Budgets are used for two distinct purposes...

Planning and control

Perpetual budget

a 12-month budget that continuously rolls forward one month (or quarter) at a time as the current month (or quarter) is completed. - This approach keeps managers continually focused one year ahead

A continuous budget is a

a 12-month budget that rolls forward one month (or quarter) as the current month (or quarter) is completed

The manufacturing overhead budget lists

all costs of production other than direct materials or direct labor

The cash receipts sections lists

all of the cash inflows, except from financing, expected during the budget period. Generally, the major source of receipts is from sales

With a top-down approach, top-level managers initiate the budgeting process by

issuing profit targets - The targets imposed by top-level managers, who may possess strategic vision while lacking operational knowledge, may be unrealistically high or unknowingly too low.

Insufficient inventories can lead to

lost sales or last-minute, high-cost production effort

If it were a merchandising company, instead it would prepare a

merchandise purchases budget showing the number of goods to be purchased from suppliers during the period

Companies usually create budgets by relying....

on some combination of top-down budgeting and self-imposed budgeting

Operating budgets ordinarily cover a

one-year period corresponding to a company's fiscal year. Many companies divide their annual budget into four quarters.

A company's budget ordinarily covers a

one-year period corresponding to its fiscal year and is often broken down into quarterly/monthly budgets

Lower-level managers are directed to

prepare budgets to meet those targets - This approach often demoralizes lower-level managers because it ignores their knowledge and opinions.

A self-imposed budget or participative budget is a budget that is

prepared with the full cooperation and participation of managers at all levels. A manager cannot complain that the budget was unrealistic and impossible to meet when this budget is in place.

The direct labor budget

shows the direct labor-hours required to satisfy the production budget

In large organizations, the selling/admin expense budget would be a compilation of many

smaller, individual budgets submitted by department heads and other persons responsible for this expense.

To prepare a budgeted balance sheet as of December 31, 2024, data is needed from ___________________ as of December 21, 2023.

the balance sheet

Which of the following is needed to prepare a sales budget?

the budgeted number of units to be sold

By knowing in advance how much labor time will be needed throughout the budget year,

the company can develop to adjust the labor force as the situation requires.

If a cash deficiency exists during any budget period or if there is a cash excess during any budget period that is less than the minimum required cash balance,

the company will need to borrow money.

The first step in the budgeting process is preparing...

the sales budget

Sales budget influences

the variable portion of the selling and administrative expense budget and it feeds into the production budget, which defines how many units need to be produced during the budget period

most companies use a combination of inputs from

top-level managers and lower-level managers when creating their budgets.

The 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.