Ch. 8
production budget
# of units that must be produced to satisfy sales needs & provide for desired ending finished goods inventory
how to calculate cash excess or deficiency section?
beginning cash balance add cash receipts total cash available less cash disbursements excess (deficiency) of cash available over disbursements
self-imposed (participative) budget
budget prepared with full cooperation of managers at all levels
how to calculate merchandise purchases budget
budgeted COGS add desired ending merchandising inventory total needs less beginning merchandise inventory required purchases
What shows planned profit & serves as a benchmark which performance can be measured?
budgeted income statement
how to calculate production budget
budgeted unit sales add desired units of ending finished goods inv. total needs less units of beginning finished goods inventory required production in units
On the cash budget, what's subtracted from total cash available to find cash excess or deficiency?
cash disbursements
What does the receipts section list?
cash inflows, except from financing, expected during budget period; majority from sales
Most common significant non-cash MO cost is:
depreciation
budget
detailed plan for future, in formal quantitative terms
cash budget
detailed plan showing how cash resources will be acquired & used
planning
developing goals & preparing budgets to achieve goals
The desired ending raw materials inventory for the year is the same as the desired ending inventory for:
fourth quarter
control
gathering feedback to ensure plans properly executed
manufacturing overhead budget
lists all costs of production other than DM & DL
selling & administrative expense budget
lists budgeted expenses for areas other than manufacturing
responsibility accounting
managers held responsible for revenue & cost, and differences between budgeted & actual results
What budgets are directly based on info from the sales budget?
production & selling/admin. expense budget
Direct labor budget is based on...
production budget
Which budget is used for creating DM & DL budget & MO budget?
production budget
To calculate total sales on sales budget, multiply budgeted sales in units by:
sales price per unit
master budget
separate but interdependent budgets that formally lay out company's sales, production & financial goals
ending finished goods inventory budget
shows $ amount of unsold finished goods inventory that appears on ending BS
merchandise purchases budget
shows amount of goods to be purchased from suppliers during period
direct labor budget
shows direct labor hours required to satisfy production budget
Why does unit product cost for the units produced during budget year need to be computed?
1) determine COGS on budgeted IS 2) value ending inventories on budgeted balance sheet
2 limitations of self-imposed budgeting
1) lower-level managers may make suboptimal budgeting recommendations if they lack broad perspective 2) may allow lower-level managers to create too much budgetary slack
direct materials budget
1) prepared after production requirements have been computed 2) details raw materials that must be purchased to fulfill production budget & provide for adequate inventories
cash budget is composed of 4 major sections
1) receipts section 2) disbursements sections 3) cash excess or deficiency section 4) financing section
advantages of budgeting
1. they communicate management's plans 2. forces managers to think & plan for future 3. provides means of allocating resources 4. uncover bottlenecks 5.coordinates activity by integrating plans 6. define goals for benchmarks
continuous (perpetual) budget
12 month budget that rolls forward 1 month as current month completed
sales budget
1st step in budgeting process; detailed schedule showing expected sales for budget period
What budgets are needed to calculate unit product costs?
DM, DL, & MO budgets
Required borrowings on a cash budget is calculated by:
adding desired ending cash balance to amount of deficiency
What does the disbursements section summarize?
all cash payments planned for budget period; includes raw materials purchases, DL payments, MOH costs etc