Managerial Accounting - Ch 9

Front 1

Master budget

Back 1

A summary of a company’s plans
in which specific targets are set
for sales, production, distribution,
administrative, and financing
activities; it generally culminates
in a cash budget, a budgeted
income statement, and a budgeted balance sheet.

Front 2

Bottlenecks

Back 2

Machines, activities, or processes
that limit total output because
they are operating at capacity.

Front 3

Responsibility accounting

Back 3

A system of accountability in
which managers are held
responsible for those items of
revenue and cost over which
they can exert significant
influence—and only those items.
Managers are held responsible
for differences between
budgeted and actual results.

Front 4

Participative budget

Back 4

A method of preparing budgets
in which managers prepare their
own budget estimates. These
budget estimates are then
reviewed by the manager’s
supervisor, and any issues are
resolved by mutual agreement,
leading to a completed budget.

Front 5

Continuous or perpetual
budget

Back 5

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

Front 6

Budgetary slack

Back 6

The difference between the
revenues and expenses a
manager believes can actually
be achieved and the amounts
included in the budget. Slack will
exist when revenue budgets are
intentionally set below expected
levels and expense budgets are
set above expected levels.

Front 7

Budget committee

Back 7

A group of key management
personnel responsible for overall
policy matters related to the
budget program, coordinating
the preparation of the budget,
handling disputes related to the
budget, and approving the final
budget.

Front 8

Stretch budget

Back 8

A budget that is highly difficult
to achieve. Attainment of stretch
budgets often requires
considerable changes to the way
activities are performed.

Front 9

Zero-base budget

Back 9

A method of budgeting in which
managers are required to justify
all costs as if the activities
involved were being proposed
for the first time.

Front 10

Sales budget

Back 10

A detailed schedule showing the
expected sales for coming
periods; these sales are typically
expressed in both dollars and
units.

Front 11

Cash budget

Back 11

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

Front 12

Production budget

Back 12

A detailed plan showing the
number of units that must be
produced during a period to
meet both sales and inventory
needs.

Front 13

Direct materials purchases
budget

Back 13

A detailed plan showing the
amount of raw materials that
must be purchased during a
period to meet both production
and inventory needs.

Front 14

Direct labour budget

Back 14

A detailed plan showing labour
requirements over a specified
time period.

Front 15

Manufacturing overhead
budget

Back 15

A detailed plan showing the
indirect production costs that
will be incurred over a specified
time period.

Front 16

Ending finished goods
inventory budget

Back 16

A budget showing the dollar
amount of cost expected to
appear on the balance sheet
for unsold units at the end of a
period.

Front 17

Selling and administrative
expense budget

Back 17

A detailed schedule of planned
expenses that will be incurred in
areas other than manufacturing
during a budget period.

Front 18

Static budget

Back 18

A budget designed for only the
planned level of activity.

Front 19

Flexible budget

Back 19

A budget that provides
estimates of what revenues and
costs should be for any level of
activity within a specified range.

Front 20

Flexible budget variance

Back 20

The difference between actual
and flexible budget amounts for
revenues and expenses.

Front 21

Static budget variance

Back 21

The difference between actual
and static budget amounts for
revenues and expenses.

Front 22

Sales volume variance

Back 22

The difference between flexible
and static budget amounts for
revenues and expenses caused
by actual activity levels differing
from static budget amounts.

Front 23

Inventory ordering costs

Back 23

Costs associated with the
acquisition of inventory, such as
clerical costs and transportation
costs.

Front 24

Costs of not carrying
sufficient inventory

Back 24

Costs that result from not having
enough inventory on hand to
meet customers' needs, including
customer dissatisfaction and lost
sales, forgone quantity discounts,
uneven production, and additional
transportation charges.

Front 25

Inventory carrying costs

Back 25

Costs associated with the
storage of inventory, such as
storage space, property taxes,
insurance, and interest on funds.

Front 26

Economic order quantity
(EOQ)

Back 26

The order size for materials that
minimizes the costs of ordering
and carrying inventory.

Front 27

Economic production lot
(batch) size

Back 27

The number of units produced in
a production lot that minimizes
setup costs and the costs of
carrying inventory.

Front 28

Setup costs

Back 28

Labour and other costs involved
in getting facilities ready to
produce a batch of a particular
production item.

Front 29

Reorder point

Back 29

The point in time when an order
must be placed to replenish
depleted inventory; it is
determined by multiplying the
lead time by the average daily
or weekly usage.

Front 30

Safety stock

Back 30

The difference between average
usage of materials and
maximum usage of materials
that can reasonably be expected
during the lead time.

Front 31

Lead time

Back 31

The interval between the time
that an order is placed and the
time that the order is actually
received from the supplier or
production is completed.