Ch. 8 Master Budgeting

Production Budget

A detailed plan showing the number of units that must be produced during a period in order to satisfy both sales and inventory needs Budgeted Unit Sales + Desired Units of End FG In Total Needs - Units Begin FG Inv Required Production in Units

MOH Budget

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

Direct Labor Budget

A detailed plan that shows the direct labor-hours required to fulfill the production budget.

Merchandise Purchases Budget

A detailed plan used by a merchandising company that shows the amount of goods that must be purchased from suppliers during the period. Budgeted COGS +Desired End Merch. Inv Total Needs -Begin Merch. Inv Required Purchases

Sell & Admin 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. Budgeted Unit Sales (x) Sell Price/Unit Total Sales

Self Imposed Budget (Participative Budget)

A method of preparing budgets in which managers prepare their own budgets. These budgets are then reviewed by higher-level managers, 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 differences between budgeted and actual results.

Schedule of Expected Cash Collections

Begin Accounts Receive 1st Qr. Sales 2nd Qr. Sales 3rd Qr. Sales 4th Qr. Sales Total Cash Collections

Continuous Budget (Perpetual Budget)

A 12-month budget that rolls forward one month as the current month is completed.

End. FG Inventory Budget

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

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. Required Produce (Units) FG Units of RM need/unit FG Units of RM need for produce +Desired Units of End RM In Total Units of RM need -Units of Begin RM Inv Units of RM to be purch. Unit Cost of RM Cost of RM to be purch

Advantages of Budgeting

Budgets communicate management's plans throughout the organization. Budgets force managers to think about and plan for the future. In the absence of the necessity to prepare a budget, many managers would spend all of their time dealing with day-to-day emergencies. The budgeting process provides a means of allocating resources to those parts of the organization where they can be used most effectively. The budgeting process can uncover potential bottlenecks before they occur. Budgets coordinate the activities of the entire organization by integrating the plans of its various parts. Budgeting helps to ensure that everyone in the organization is pulling in the same direction. Budgets define goals and objectives that can serve as benchmarks for evaluating subsequent performance

Budget

Detailed plan for future that's usually expressed in formal quantitative terms

Planning

Developing goals and preparing budgets to achieve those goals.

Control

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