Ch. 8- Master Budgeting

Master Budget

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

Ending finished gods inventory budget computes ______ __ _____ ______

Cost of unsold units

Required borrowings on a cash budget is calculated by:

Desired ending cash balance + amount of the cash deficiency

Direct Materials Budget

Details the raw materials that must be purchased to fulfill the production budget and to provide for adequate inventories. Required prod. in units of fin. goods Units of raw mat. needed /unit of fin goods Units of raw mat. needed to meet production Add desired units of ending raw materials inventory Total units of raw materials needed Less units of beg. raw materials inv. Units of raw materials to be bought Unit cost of raw materials Cost of raw materials to be bought

What budgets are needed to calculate unit product costs?

Direct materials budget, direct labor budget, and manufacturing overhead budget.

Disbursements Section

Direct materials, direct labor payments, and manufacturing overhead costs.

Control

Gathering feedback to ensure that the plan is being followed.

Production Budget

In a manufacturing company, it's prepared directly after the sales budget. It shows the number of units that must be produced to satisfy sales needs and to provide for the desired ending inventory.

Planning

Involves developing goals and preparing various budgets to achieve those goals.

What budgets are directly influenced by the sales budget?

Production Budget Selling and Admin. Expense Budget

Budgeted Income Statement

Shows a company's planned net profit and serves as a benchmark against subsequent company performance can be measured.

Manufacturing Overhead Budget

The budget that shows all costs of production other than direct materials and direct labor.

Direct Labor Budget

The budget that shows the direct labor hours required to satisfy the production budget.

Responsibility Accounting

The idea that a manager should be held accountable for only the items the manager can actually control.

How to calculate Variable Selling and Administrative Expenses?

(Budgeted units sold) x (the variable selling and admin expense per unit)

On the sales budget, Total Sales = ?

(Sales price per unit) x (budgeted unit sales)

Disadvantages of *not* knowing in advance how much labor time will be needed throughout the budget period:

-Erratic layoffs -Labor shortages -Low employee morale

What four major sections is the cash budget composed of?

-Receipts section -Disbursements section -Cash excess or deficiency section -Financing section

Self-Imposed, or Participative, Budget

A budget prepared with the full cooperation of management at all levels.

Continuous, or Perpetual, Budget

A budget that keeps managers focused on year ahead, so they do not become too narrowly focused on short-term results.

Sales Budget

A detailed schedule showing the expected sales for the budget period.