Acct CH 8

Planning

Developing goals and preparing budgets to achieve those goals

Raw material purchases, Direct labor payments, manufacturing overhead costs

Examples of disbursement payments?

no; only for cash disbursements

For total manufacturing overhead and total selling and administrative expenses do you subtract depreciation?

Beginning Cash Balance +Add cash receipts =Total Cash available -Less cash disbursements =Excess (deficiency) of cash available over disbursements

How is the cash excess or deficiency section computed:

Use Financing

If there is a cash deficiency what should the company do?

Amount borrowed * Simple Interest rate * # of periods remaining

Interest for financing for the cash budget

True

Materials and labor budgets are based on the production budget.

One-year

Operating budgets generally cover a ____________ period

>>Beginning inventory of raw materials >>Raw materials required per unit

When preparing a direct materials purchase budget, which of the following is needed to calculate the raw materials to be purchased?

Production Budget

Which budget is prepared directly after the sales budget in a manufacturing company?

Merchandise purchases budget

Which budget shows the amount of goods to be purchased from suppliers during the period?

>>Budgets coordinate the activities of the entire organization by integrating the plans of its various parts. >>The budgeting process can uncover potential bottlenecks before they occur. >>Budgets define goals and objectives that can serve as benchmarks for evaluating subsequent performance. >>Budgets force managers to think about and plan for the future.

Which of the following are advantages of budgeting?

>>Direct materials budget >>Manufacturing overhead budget >>Direct labor budget

Which of the following budgets are needed to calculate unit product costs?

Payments for raw materials

Which of the following is directly used in the cash disbursements schedule?

Top executives

Who has the most influence over lower-level managers' attitudes towards a budget program?

Continuous budget

a 12 month budget that rolls forward one month as the current month is completed

Ending finished Goods inventory Budget

a budget showing the dollar amount of unsold finished goods inventory that will appear on the ending balance sheet

Budget

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

Cash budget

a detailed plan showing how cash resources will be acquired and used over a specific time period

Direct Materials Budget

a detailed plan showing the amount of raw materials that must be purchased to fulfill the production budget and to provide for adequate inventories

Manufacturing overhead budget

a detailed plan showing the production costs, other than direct materials and direct labor that will be incurred over a specified time period

Production budget

a detailed plan showing the the number of units that must be produced during a period in order to satisfy both sales and inventory needs

Direct Labor Budget

a detailed plan that shows the direct labor hours required to fulfill the production budget

Merchandise purchase budget

a detailed plan used by a merchandising company that shows the amount of goods that must be purchased from suppliers during the period

Selling and Administrative expense budget

a detailed schedule of planned expenses that will be incurred in areas other than manufacturing during a budget period

Sales budget

a detailed schedule showing expected sales expressed in both dollars and units

Self imposed budget

a method of preparing budgets in which managers prepare their own budgets. These budgets are then reviewed by higher level mangers, and any issues are resolved by mutual agreement

Master Budget

a number of separate but interdependent budgets that formally lay out the company's sales, production, and financial goals and that culminates in a cash budget, budgeted income statement, and budgeted balance sheet

Responsibility Accounting

a system of accountability in which managers are held responsible for those items of revenue and cost and -only those items- over which they can exert significant control. The managers are held responsible for difference between budgeted and actual results

Control

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

sales

What is the major source of the receipt section?

lists all of the cash inflows, except from financing

What is the receipt section?

committee

A budget _________ is usually responsible for overall policy relating to the budget program and for coordinating the preparation of the budget itself.

slack

A manager who wants to submit a budget that is easy to attain will try to put budgetary _________ into his or her budget.

1. Sales Budget (including expected cash collected) 2. Production Budget 3. Direct Materials Budget 4. Direct Labor Budget 5. Manufacturing Overhead Budget 6. Ending Finished Goods Inventory Budget 7. Selling and Administrative Expense Budget 8. Cash Budget 9. Budgeted Income Statement 10. Budgeted Balance Sheet

Organization of The Master Budget - 10 Schedules

Desired ending cash balance +Plus deficiency of cash available over disbursements =Min required borrowings

Required borrowings at the beginning of the first quarter calculation

adding the desired ending cash balance to the amount of cash deficiency.

Required borrowings on a cash budget is calculated by:

First, lower-level managers may make suboptimal budgeting recommendations if they lack the broad strategic perspec- tive possessed by top managers. Second, self-imposed budgeting may allow lower-level managers to create too much budgetary slack.

Self-imposed budgeting has two important limitations.

1. Individuals at all levels of the organization are recognized as members of the team whose views and judgments are valued by top management. 2. Budget estimates prepared by front-line managers are often more accurate and reli- able than estimates prepared by top managers who have less intimate knowledge of markets and day-to-day operations. 3. Motivation is generally higher when individuals participate in setting their own goals than when the goals are imposed from above. Self-imposed budgets create commitment. 4. A manager who is not able to meet a budget that has been imposed from above can always say that the budget was unrealistic and impossible to meet. With a self- imposed budget, this claim cannot be made.

Self-imposed budgets have a number of advantages:

Participative budget

Synonym to Self imposed budget

Perpetual budget

Synonym to continuous budget

Manufacturing Overhead; Selling and Administrative

The ___ ___ budget and the ___ and ___ expense budget are very similar

Budgeted Income Statement

The ___________ shows a company's planned net profit and serves as a benchmark against which subsequent company performance can be measured.

receipts, disbursements, the cash excess or deficiency, and financing.

The cash budget includes four major sections:

Receipts Section Disbursements Section Cash Excess or Deficiency Section Financing Section

The cash budget is composed of four major sections which are?

-To answer 10 key questions -It hinges on a variety of estimates and assumptions

The master budget can be seen in two respects which are:

Budgeted Unit Sales +Add desired units of ending finished goods inventory =Total needs -Less units of beginning finished goods inventory =Required Production in Units

The production budget- how to calculate the required production in units?

>>establish goals >>motivate people >>coordinate efforts

The purpose of a budget should be to (check all that apply):

etermine cost of goods sold on the budgeted income statement.

The unit product cost is needed to:

It is the excess or deficit in cash when cash receipts are subtracted from the cash disbursements

What is the cash excess or deficiency?

summarizes all cash payments

What is the disbursements section?