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.

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

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

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?

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

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 annual master budget file includes the _______ from last year because it is needed for the schedule of expected cash collections

balance sheet

to prepare a budgeted balance sheet as of december 31, 2020, data is needed from the ___________ december 31, 2019

balance sheet as of

a budgeted balance sheet is developed using data from the _________ of the budget period and data contained in the various schedules.

beginning

a detailed plan for the future that is usually expressed in formal quantitative terms is a(n) ____________.

budget

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

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

when creating an excel budget and performing what-if analysis, it is generally easiest to ____________.

create the budget with a budgeting assumption tab

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

working hours required to satisfy the production budget are shown on the _________ budget.

direct labor

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 cost of unsold units is computed on the _________ budget

ending finished goods inventory

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

two distinct purposes of budgets; to be effective, a good budgeting system must provide for both

planning and control

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

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

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

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

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

an integrated business plan that formally lays out the company's goals is called 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