Managerial Accounting: Chapter 8-Master Budgeting – Flashcards
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Budget
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A plan for the future expressed in quantitative terms
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What are budgets used for?
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1. Planning-Develop goals and prepare various budgets to ensure that they're achieved 2. Control-Gathering feedback to ensure that the budget is in order or that modifications are being made
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Advantages of a budget
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1. Communicates management's plan throughout the organization 2. Forces managers to think & plan for the future 3. Budgeting provides managers the means to allocate resources 4. Bottle necks are discovered 5. Unity of organization 6. Defines goals & objectives that makes benchmarking easier
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Responsibility Accounting
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A principle that states managers should be held responsible for certain accounting items and those alone (what they can control, i.e. rev/expenses).
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Continuous or perpetual system
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12 month budget that rolls forward one month or quarter
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Self Imposed Budget
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A budget set up by the managers of each level collaboratively
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Advantages of self imposed budget
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1. All managers of the organization are recognized and given "a voice" 2. Front line management are more familiar with day to day operations and have more knowledge about the market 3. Management can't claim that the budget is unrealistic/impossible to meet 4. Motivation and commitment is generally higher
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Two limitations of the self imposed budget
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1. Too much slack could occur, especially in the lower level manager's budgets. 2. Lower level management might suggest ideas that are inadequate
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Master Budget
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Number of separate, but connected budgets that lay out the company's sales, productions, and financial goals
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Sales budget
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A detailed budget that shows the predicted number of sales for the budgeted period
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Cash budget
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Details how cash will be acquired and used
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The production budget
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The amount of units that need to be sold in order to satisfy sales needs and to provide for the desired ending inventory of finished goods.
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Merchandise purchase budget
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The amount of goods that are going to be purchased from a supplier during the budgeted period.
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Direct materials budget
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The amount of raw materials needed to satisfy production needs and to provide for an adequate amount of inventory
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The direct labor budget
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The amount of labor required in order to satisfy production budget
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The manufacturing overhead budget
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Lists all the cost not including production costs of direct materials and labor
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The ending finished goods inventory budget
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A budget showing the amount of unsold goods that will appear on the ending balance sheet in dollar amount
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The selling & administrative budget
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Lists the budgeted areas other than manufacturing
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The cash budget
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Responsible for: 1. Receipts section: Cash inflows (not including finance) 2. Disbursement section: Amount of payments to be made including the purchase of equipment and the distribution of dividends 3. Cash excess of deficiency 4. Financing section
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Budgeted income statement
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Companys profits + Benching marking
