Accounting 200 Ch 13 Budgeting

Front 1

Budget

Back 1

Budget: Business plan in financial terms
Budgeting involves
Establishing specific goals
Executing plans to achieve goals
Periodically comparing results with goals

Front 2

Objectives of Budgeting

Back 2

1)establishing specific goals
2)executing plans to achieve the goals
3)periodically comparing actual results with the goals

Front 3

Human Behavior

Back 3

human behavior problems can arise if the budget is unachievable(too high), the budget goal is very easy to achieve(too loose), or the budget goals of the business conflict with the objectives of the employees(goal conflict)

Front 4

Setting Budget Goals Too Tightly

Back 4

people can become discouraged if performance expectations are set too high

Front 5

Setting Budget Goals Too Loosely

Back 5

it is undesirable to plan lower goals than may be possible which is called budget "padding" or budgetary slack

Slack budgets can cause employees to develop a "spend or lose it" mentality. This often occurs at the end of the budget period when actual spending is less than the budget. Employees may attempt to spend the remaining budget (purchase equipment,hire consultants, purchase supplies) in order to avoid having the budget cut next period.

Front 6

Setting Conflict Budget Goals

Back 6

goal conflict occurs when individuals self-interest differs from business objectives.

Front 7

Continuous Budgeting

Back 7

a variation of fiscal-year budgeting that maintains a 12 month projection into the future.

Front 8

Zero-based budgeting

Back 8

requires managers to estimate sales, production, and other operating data as though operations are being started for the first time.

Front 9

Static budget

Back 9

a static budget shows the expected results of a responsibility center for only one activity level.

a disadvantage of static budgets is that they do not adjust for changes in activity levels.

Front 10

Flexible Budget

Back 10

flexible budgets show the expected results of a responsibility center for several activity levels.

Front 11

Sales budget

Back 11

the sales budget normally indicates for each product, the quantity of estimated sales and the expected unit selling price

Front 12

Production Budget

Back 12

the number of units to be manufactured to meet budgeted sales and inventory needs for each product

Expected units sold
+Desired units in ending inventory
-Estimated units in the beginning inventory
___________________________
Total units to be produced

Front 13

Direct Materials Purchases Budget

Back 13

the production budget is the starting point for determining the estimated quantities of direct materials to be purchased. Multiplying these quantities by the expected unit purchase price determines the total cost of direct materials to be purchased

Materials required for production
+Desired ending materials inventory
-Estimated beginning materials inventory
__________________________
Direct materials to be produced

Front 14

Cost of Goods Sold Budget

Back 14

the direct materials purchases budget, direct labor cost budget, and factory overhead cost budget are the starting point for preparing the cost of goods sold budget

Front 15

Cash Budget

Back 15

presents expected receipt(inflows) and payments(outflows) of cash for a period of time

Front 16

Master budget

Back 16

A master budget is a combination of budgets linked to form budgeted income statement & budgeted balance sheet.

Front 17

Cost of goods sold budget

Back 17

derived from the sales & production budgets, includes beginning finished goods & work in process inventories and subtracts ending finished goods & work in process inventories .

Front 18

How many budgets make up the budgeted Balance Sheet?

Back 18

2 budgets make up a budgeted Balance Sheet:
Cash budget projects operating cash inflows & outflows
Capital expenditures budget projects cash outflows for PPE .

Front 19

STANDARDS

Back 19

Standards are performance goals
Standard costs systems
Provide a measure for performance
Allow measurement of variances from performance goals
Standards should be revised as necessary

Front 20

MEASURING CHANGES IN UNIT VARIABLE COSTS

Back 20

Given: Fixed costs = $840,000; unit CM = $250 – 145 = $105
Break-even sales = $600,000 / 20 = 8,000 units

840,000 / {105 – ($250*2%)} =
8,400

When unit variable cost increased by $5, break-even units increased by 400.

Front 21

Budgetary performance evaluation

Back 21

compares actual performance to budget projections.

Front 22

Non-financial measures

Back 22

can augment financial measures for performance evaluation to avoid goal conflicts.

Front 23

NON-FINANCIAL PERFORMANCE MEASURES

Back 23

Inventory turnover
On-time delivery
Lapsed time order to delivery
Customer preference rankings
Response time
Product development time
Employee satisfaction
Customer complaints