Chapter 22: Budget
In a Cash receipt March $100 April $200 30% are cash items $20 per month in depreciation 40% of sales are incurred in the month What is the total for March?
100-20=$80 (the $20 is taken out as a non-cash item and not accounted for) $80 * .3 = $24 (Cash) $80 * .7 = $56 (Credit) $56 * .4 = $22.4 $24 + $22.4 = $46.40 (total for March)
This is why companies should create
Attainable goals, but not goals that are too easily attainable either (they are more likely to motivate employees and managers.)
Financial Budgets consist of what
Cash Budgets and Capital expenditures
explain controlling in regard to a budget
Controlling involves comparing actual performance against the budgeted goals (this provides feedback to managers and employees about their performance)
All of the individual budgets mentioned before make up the
Cost of Goods Sold Budget
Once sales quantities are estimated, the budgeted sales revenue can be determined by
expected sales x expected unit sales price (remember do NOT merge different products together, each product units are separate)
How do you find the production budget?
expected units sold + desired ending inventory = total available units total available units - est. units at beginning inventory = total units to be produced
The budgetary period for operating activities normally include the
fiscal year of a company
Complete 22-3a pg. 1140 for a good review. I think I have picture answers of this
just saying :)
A budgetary unit of a company is called a
responsibility center. (Each responsibility center is led by a manager who has the authority and responsibility for achieving the center's budgeted goals.)
when operating budgets, what are the first 3 parts
sales drive production drives Direct Material, Direct Labor, and Factory Overhead
A way to develop budget estimates is a FLEXIBLE Budget explain it
show the expected results of a company for several activity levels/units produced (this is kind of like a series of static budgets for different levels of activity) it is the most accurate
The factory overhead cost budget estimates
the cost for each item of factory overhead needed to support budgeted production. (this is based on estimates for fixed and variable budgets)
The direct labor cost budget estimates
the direct labor hours and related cost needed to support budgeted production.
The production budget estimates what?
the number of units to be manufactured to meet budgeted sales and desired inventory levels
The direct materials purchases budget estimates what?
the quantities of direct materials to be purchased to support budgeted production and desired inventory levels.
A way to develop budget estimates is a STATIC BUDGET explain it
this creates a budget based off of only one level of activity. The disadvantage of this is that it does not account for potential changes very well
A way to develop budget estimates is by a zero-based budgeting Explain it
this requires managers to estimate sales, production, and other operating data as though operations are being started for the first time. (this does not put research into it... or inflation)
factory overhead cost budget is found by
simply adding things up (ID fact. wages supervisor wages power/lights depreciation of plant ID Materials Maintenance Insurance)
The Total Manufacturing Costs is made up by the
Direct Materials Purchases Budget Direct Labor Cost Budget Factory Overhead Cost Budget
explain directing in regard to a budget
Directing involves decisions and actions to achieve budgeted goals.
Explain how Human behavior problems can arise in the budgeting process (three ways)
If Budgeted goals are set too tight, they will be very hard or impossible to achieve. If Budgeted goals are set too loose, they are too easy to achieve. If Budgeted goals conflict with the objectives of the company and employees.
Budgeting affects the 3 following managerial functions
Planning Directing Controlling
explain Planning in regard to a budget
Planning involves setting goals to guide decisions and help motivate employees.
The capital expenditures budget summarizes plans for
acquiring fixed assets. These are items that generally take a long time. (THINK building a new factory)
what is budgetary slack or budget "padding?"
budgeters can put slack in their budgets to provide a "cushion" for unexpected events
A variation of fiscal-year budgeting, called
continuous budgeting, it maintains a 12-month projection into the future. it is continually revised
The sales budget begins by
estimating the quantity of sales.
The cash budget estimates the
expected receipts (inflows) and payments (outflows) of cash for a period of time. (this is a cash flow statement)
