smartbook chapter 8
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
a detailed plan for the future that is usually expressed in formal quantitative terms is _________.
a budget
self-imposed budget (participative budget)
a budget that is prepared with the full cooperation and participation of managers at all levels
budget
a detailed plan for the future that is usually expressed in formal quantitative terms
master budget
a number of separate but interdependent budgets that formally lay out the company's sales, production, and financial goals. it culminates in a cash budget, a budgeted income statement, and a budgeted balance sheet.
why do organizations create budgets from a planning standpoint?
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 benefits before they occur
why do organizations create budgets from a control standpoint? they compare their budgets to actual results to:
1.) improve the efficiency and effectiveness of operations 2.) evaluate and reward employees
the annual master budget file includes the _______ from last year because it is needed for the schedule of expected cash collections
balance sheet
a detailed plan for the future that is usually expressed in formal quantitative terms is a(n) ____________.
budget
which of the following is not found in the financing section of the cash budget?
cash deficiency
budgets _________.
communicate management's plan throughout the organization
budgets ___________.
communicate management's plan throughout the organization
sales budget
detailed schedule showing the expected sales for the budgeted period
the number of working hours required to satisfy the production budget is shown on the ___________ ____________ budget
direct labor
sales budget
first step in the budgeting process, a detailed schedule showing the expected sales for the budget period. an accurate sales budget is the key to the entire budgeting process.
manufacturing overhead budget
lists all costs of production other than direct materials and direct labor
using budgeting assumptions when preparing the master budget, ___________.
makes it easier to answer "what-if" questions
all costs of production other than direct materials and direct labor are shown on the ___________ ____________ budget.
manufacturing overhead
all costs of production other than direct materials and direct labor are shown on the _______________ budget
manufacturing overhead
developing goals and preparing various budgets to achieve those goals is part of ____________.
planning
developing goals and preparing various budgets to achieve those goals is part of the _______ process.
planning
in a manufacturing company, the _________ budget shows the number of units that must be manufactured to satisfy sales needed and provide for the desired inventory
production
to calculate total sales on the sales budget, multiply budgeted sales in units by ___________.
sales price per unit
a manager cannot complain that the budget was unrealistic and impossible to meet when a(n) _____________-____________ budget is in place
self-imposed
budgeted expenses for areas other than manufacturing are shown on the __________ budget.
selling and administrative
in large organizations, many smaller individual budgets submitted by department heads and other responsible people comprise the _____________ budget.
selling and administrative
direct labor budget
shows the number of direct-labor hours needed to satisfy the production budget
which of the following is needed to prepare a sales budget?
the budgeted number of units sold
true or false: many of the schedules in a master budget are based on a variety of management estimates and assumptions
true managers must make a number of estimates and assumptions when preparing a master budget
the ending finished goods inventory budget computes the cost of __________ units.
unsold
to prepare a budgeted balance sheet as of december 31, 2020, data is needed from the ___________ december 31, 2019
balance sheet as of
a number of separate, but interdependent, budgets that formally lay out the company's sales production, and financial goals are contained in the __________ budget.
master
the amount of goods for resale to be acquired from suppliers during the period is shown on the _________ _________ budget.
merchandise purchases
the amount of goods to be acquired from suppliers during the period is shown on the __________ budget
merchandise purchases
more accurate estimates and higher motivation are generally the result of using a(n) ____________ budget.
participative
in a manufacturing company, the __________ budget shows the number of units that must be manufactured to satisfy sales needs and provide for the desired ending inventory
production
select all that apply: master budget schedules __________.
-answer several key questions for a company -are based on estimates and assumptions
select all that apply budgets ____________.
-define goals and objectives that can serve as benchmarks for evaluating subsequent performance -and the budgeting process can uncover potential bottlenecks before they occur -force managers to think about and plan for the future -coordinate the activities of the entire organization by integrating the plans of its various parts
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
planning
involves developing goals and preparing various budgets to achieve those goals
control
involves gathering feedback to ensure that the plan is being properly executed or modified as circumstances change
an integrated business plan that formally lays out the company's goals is called the ___________ budget.
master
because of these complications many companies choose to involve lower-level managers in the budgeting process because:
1.) it shows respect for their opinions 2.) it leverages their knowledge to provide more accurate estimates than those imposed by top-level managers who have less intimate knowledge of day-to-day operations 3.) it increases their motivation to achieve their own self-imposed goals 4.) it empowers them to take ownership of the budget and to be accountable for deviations from it
the cash budget is composed of four main sections:
1.) the cash receipts section (lists all cash inflows except from financing expected during the budget tonight. generally, the major source of receipts is from sales) 2.) the cash disbursements section (summarizes all cash payments that are planned for the budget period, including raw materials purchases, direct labor payments, manufacturing overhead costs, and so on) 3.) the cash excess or deficiency section 4.) the financing section
the receipts section of the cash budget lists ____________.
all cash inflows, except from financing
because it is needed for the schedule of expected cash collections, the annual master budget file includes the ___________ ____________ from last year.
balance sheet
when creating an excel budget and performing what-if analysis, it is generally easiest to ____________.
create the budget with a budgeting assumption tab
working hours required to satisfy the production budget are shown on the _________ budget.
direct labor
the cost of unsold units is computed on the _________ budget
ending finished goods inventory
a budgeted balance sheet is developed using data from the _________ of the budget period and data contained in the various schedules.
beginning
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
in a manufacturing company, the _________ ___________ budget details the raw materials that must be purchased to fulfill the production budget and to provide for adequate inventories.
direct materials
in a manufacturing company, the ___________ budget details the raw materials that must be purchased to fulfill the production budget and provide for adequate inventories
direct materials
the section on the cash budget that summarizes all cash payments that are planned for the budget period is the cash ____________ section
disbursements
the 10 schedules contained in a master budget can be overwhelming; therefore, it is important to see the big picture in two respects. first, a master budget for a manufacturing company is designed to answer 10 key questions: second, it is important to understand that many of the schedules in a master budget hinge on a variety of estimates and assumptions that managers must make when preparing those schedules.
1.) how much sales will we earn? 2.) how much cash will we collect from customers? 3.) how much raw material will we need to purchase? 4.) how much manufacturing cost (including direct materials, direct labor, and manufacturing overhead) will we incur? 5.) how much cash will we pay to our suppliers and our direct laborers, and how much will we pay for manufacturing overhead resources? 6.) what is the total cost that will be transferred from finished goods inventory to cost of goods sold? 7.) how much selling and administrative expense will we incur and how much cash will we pay related to those expenses? 8.) how much money will we borrow from or repay to lenders - including interest? 9.) how much net operating income will we earn? 10.) what will our balance sheet look like at the end of the budget period?
two distinct purposes of budgets; to be effective, a good budgeting system must provide for both
planning and control