SB Chapter 8: Master Budgeting

The first step in the budgeting process is preparing the ______- budget

sales

The calculation of unit product cost requires information from the _______ budget Multiple choice question. a. cash b. manufacturing overhead c. selling & administrative d. ending finished goods inventory

b

The final schedule of the master budget is the: Multiple choice question. a. budgeted income statement b. budgeted balance sheet c. cash budget d. sales budget

b

a master budget for a manufacturing company is designed to answer 10 key questions as follows:

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 the 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?

What are the four main sections of the cash budget?

1. The cash receipts section. 2. The cash disbursements section. 3. The cash excess or deficiency section. 4. The financing section.

Continous/Perpetual Budget

12-month budget that rolls forward one month (or quarter) as the current month (or quarter) is completed

cash budget

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

Basic idea underlying responsibility accounting

A manager should be held responsible for those items—and only those items—that the manager can actually control to a significant extent

what does the master budget consist of?

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

What does control involve?

Gathering feedback to ensure that the plan is being properly executed or modified as circumstances change

What does the direct materials budget do?

It details the raw materials that must be purchased to fulfill the production budget and to provide for adequate inventories.

What does the manufacturing overhead budget do?

It lists all costs of production other than direct materials and direct labor

What does the selling and administrative expense budget do?

It lists the budgeted expenses for areas other than manufacturing

What does the production budget do?

It lists the number of units that must be produced to satisfy sales needs and to provide for the desired ending finished goods inventory.

What does the merchandise purchases budget show?

The amount of goods to be purchased from suppliers during the period

What is computed on the ending finished goods inventory budget?

The cost of unsold units

What does the direct labor budget show?

The direct labor-hours required to satisfy the production budget.

Required borrowings on a cash budget is calculated by: Multiple choice question. a. adding the desired ending cash balance to the amount of the cash deficiency b. subtracting the desired ending cash balance from the amount of cash excess c. subtracting the beginning cash balance from the amount of the cash deficiency d. adding the desired ending cash balance to the amount of cash excess

a

S&P Enterprises has scheduled direct material purchases of $100,000 in January, $130,000 in February and $150,000 in March. The company pays for 75% of its purchases in the month of purchase and 25% the month after the purchase. Calculate the expected cash disbursements for the month of February. Multiple choice question. a. $122,500 b. $130,000 c. $135,000 d. $107,500

a

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 quantitative terms

Sales Budget

a detailed schedule showing the expected sales for the budget period

Risks of not knowing in advance how much labor time will be needed throughout the budget period includes: Multiple select question. a. erratic layoffs b. low employee morale c. excessive inventory levels d. labor shortages

a, b, d

The annual master budget file includes the ________ from last year because it is needed for the schedule of expected cash collections. Multiple choice question. a. income statement b. balance sheet c. sales budget d. cash budget

b

To prepare a budgeted balance sheet as of December 31, 2016, data is needed from the: Multiple choice question. a. statement of cash flows for the year ended December 31, 2016 b. income statement for the year ended December 31, 2015 c. balance sheet as of December 31, 2015

c

Which of the following is needed to calculate raw materials to be purchased on the direct materials budget? Multiple select question. a. Ending finished goods inventory b. Budgeted unit sales c. Beginning inventory of raw materials d. Raw materials required per unit

c and d

All costs of production other than direct materials and direct labor are shown on the _________ budget. Multiple choice question. a. cash b. merchandise purchases c. ending finished goods inventory d. manufacturing overhead

d

Budgeted expenses for areas other than manufacturing are shown on the ______ budget. Multiple choice question. a. manufacturing overhead b. cash c. ending finished goods inventory d. selling and administrative

d

The ending finished goods inventory budget computes the: Multiple choice question. a. number of unsold units b. number of sold units c. cost of sold units d. cost of unsold units

d

What does planning involve?

developing goals and preparing various budgets to achieve those goals

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

In a manufacturing company, the _____ budget is used to determine the budgets for manufacturing costs, including the direct materials budget, the direct labor budget, and the manufacturing overhead budget.

production

6 benefits from budgeting

1. Budgets communicate management's plans throughout the organization. 2. 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. 3. The budgeting process provides a means of allocating resources to those parts of the organization where they can be used most effectively. 4. The budgeting process can uncover potential bottlenecks before they occur. 5. 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. 6. Budgets define goals and objectives that can serve as benchmarks for evaluating subsequent performance.

In large organizations, many smaller individual budgets submitted by department heads and other responsible people comprise the ______ budget. Multiple choice question. a. selling and administrative b. cash c. manufacturing overhead d. ending finished goods inventory

a

The cash budget: Multiple choice question. a. is prepared near the end of the master budget process b. is the first budget prepared in the master budget process c. uses information from the budgeted balance sheet and income statement

a

Which of the following budgets shows the company's planned profit and serves as a benchmark against which subsequent company performance can be measured? Multiple choice question. a. Budgeted selling and administrative expenses b. Budgeted income statement c. Manufacturing overhead budget d. Budgeted balance sheet

b

The budgeted income statement does NOT rely on information from the _______ budget. Multiple choice question. a. selling and administrative expense b. sales c. production d. ending finished goods inventory

c

The cash budget uses information from several other budgets. Which of the following budgets is NOT used to prepare the cash budget? Multiple choice question. a. Direct labor budget b. Selling and administrative budget c. Production budget d. Sales budget

c

What number does the direct materials budget take directly from the production budget? Multiple choice question. a. Budgeted sales b. Beginning raw materials inventory c. Ending inventory of finished goods d. Required production

d