Mangerial Accounting Chapter 8 [Budgeting]

Front 1

What is a budget?

Back 1

Planned consumption of organizational resource to satisfy organizational strategy and objectives. Illuminates variances between planned and actual results.

Front 2

What is the Strategic Plan?

Back 2

Identifies strategy and goals for future activities and operative over the next 3-5+ years.

Front 3

What are four (4) advantages of budgeting?

Back 3

1. Forces managers to plan.
2. Provides information that can be used to improve decision making.
3. Provides standards for performance evaluation.
4. Improves communication and coordination.

Front 4

What do budgets do, with respect to control?

Back 4

Compares planned with actual results.

Front 5

What are the four (4) basic financial reporting documents?

Back 5

1. Balance Sheet
2. Income Statements
3. Statement of Cashflows
4. Statement of Liabilities & Stockholder Equity

Front 6

What is the Master Budget?

Back 6

The Master Budgets is the comprehensive budget for the organization as a whole.

Front 7

What two (2) budgets types are components of the Master Budget?

Back 7

1. Operating Budget
2. Financial Budget
(Capital Expenditure budget is also a sub-budget of the Master Budget)

Front 8

What is Continuous Budgeting?

Back 8

Continuous budgeting is a rolling 12-month budget; when one month expires, another month is added.

Front 9

What does the Budget Committee do?

Back 9

The Budget Committee sets budgetary goals, reviews the budget, approves the final budget, and sets policy and guidelines.

Front 10

What does the Budget Director do?

Back 10

The Budget Director directs and coordinates the overall budgeting process. In most cases, the controller also serves as the budget director.

Front 11

What are operating budgets?

Back 11

Operating budgets plan and describe income-generating activities, including costs and revenues.

Front 12

What are financial budgets? What do they do?

Back 12

Financial Budgets detail the inflows and outlows of cash, and overall financial condition.

Front 13

What is the Sales Budget?

Back 13

The Sales Budget is a projection/forecast of expected sales in units and dollars. This is done first, usually by marketing department.

Front 14

What is the Production Budget?

Back 14

Production planned to satisfy sales, and ending inventory requirements.

Front 15

What is the Direct Materials Budget?

Back 15

Planned consumption and cost of raw materials to satisfy production and ending raw materials requirements.

Front 16

What is the Direct Labor Budget?

Back 16

The Direct Labor Budget shows the total labor hours needed, and associated costs, to satisfy production.(see production budget)

Front 17

What is the Overhead Budget?

Back 17

The Overhead Budget shows the expected cost of all indirect manufacturing items to be consumed.

Front 18

Ending Finished Goods Inventory Budget:

Back 18

Planned ending inventory for each time period.

Front 19

Cost of Goods Sold Budget:

Back 19

Expected cost of the goods to be sold.

Front 20

What does the Selling and Administrative Expenses Budget do?

Back 20

Outlines planned expenditure for non-manufacturing activities.

Front 21

What are the components of a Budgeted Income Statement?

Back 21

Estimate of operating income.

+ Planned Sales/Revenues
- COGS (= Gross Margin)
- Selling & Admin (= Op Income)
- Interest (= Income before taxes)
- Taxes (= Net Income)

Front 22

What are three (3) budgets included in Financial Budgets?

Back 22

1. Budgeted Income Statement
2. Budgeted Cash Flows
3. Budgeted Balance Sheet
[4. Budgeted Capital Expenditures]

Front 23

What is the Cash Budget?

Back 23

The Cash Budget documents need for cash, indicating surplus and deficit of cash in various periods. (This is one of the most important budgets in the Master Budget.)

Front 24

Cash is the _________ of an organization.

Back 24

Cash is the -lifeblood- of an organization.

Front 25

What is the difference between current assets and long-term assets?

Back 25

Current assets lifespan <1 year.
Long-term assets lifespan >1 year.

Front 26

What are the components of the Cash Budget?

Back 26

+ Beginning Cash
+ Expected Receipts
- Expected Disbursments
- Minimum Cash Balance
= Surplus or Deficit

Front 27

What are the three (3) main items in Budgeted Balance Sheet?

Back 27

1. Current Assets
2. Long Term Assets
3. Total Assets

Front 28

What are four (4) examples of current assets?

Back 28

1. Cash
2. Accounts Receivable
3. Materials Inventory
4. Finished Goods in Inventory

Front 29

What are four (4) examples of Long-term asset components?

Back 29

+Land
+Building
+Equipment
-Accumulated Depreciation

Front 30

What is a static budget?

Back 30

a static budget is founded upon a single assumption of activity level.

Front 31

What is a flexible budget?

Back 31

a plan for consumption of resources at various ranges of activity level. aka "variable budget"

Front 32

What is "flexible budget variance"?

Back 32

Flexible budget variance is the difference between the expected and actual results for the same activity level.

Front 33

What is "goal congruence" ?

Back 33

Goal congruence is tha lignment of individual managerial goals with broader organizational goals.

Front 34

What is "dysfunctional behavior" ?

Back 34

Dysfunctional behavior is individual behavior that is in basic conflict, or is otherwise incongruent with organizational goals.

Front 35

What are incentives? What they do?

Back 35

Incentives are means, monetary and non-monetary, to motivate and influence individual managerial behavior.

Front 36

What are monetary incentives?

Back 36

Salary increases, bonuses, money.

Front 37

What are non-monetary incentives?

Back 37

Job enrichment, responsibility and autonomy, flex-time, non-monetary recognition.

Front 38

What is Participative Budgeting?

Back 38

"bottom up" budgeting, allows subordinate manager considerable say over how budgets are established.

Front 39

What are three (3) problems with Participative Budgeting?

Back 39

1. Overly optimistic or pessimistic goal-setting.
2. Building slack into the budget
3. Psuedoparticipation

Front 40

What is Psuedoparticipation?

Back 40

Superficial inclusion of subordinate managers, seeking "buy-in" or acceptance of budget, whereby individual managers make no real impact on the budget.

Front 41

What is Budgetary Slack?

Back 41

Budgetary slack is "padding the budget", overestimating costs, or underestimating revenues, to reduce stress on individual managers to satisfy performance objectives.

Front 42

What are "controllable costs"?

Back 42

Controllable cost are costs over which the individual manager has some influence/control.

Front 43

What is myopic behavior?

Back 43

Short sighted behavior, where satisfaction of short-term goals is achieved at the expense of long term organizational performance.

Front 44

What is an Activity-Based Budgeting System? What does it do? How does it work?

Back 44

Activity-Based Budgeting plans activity demand and directly traces to resource consumption. Useful for continuous improvement initiatives.

Front 45

What are the three (3) phases in establishing an activity-based budgeting system?

Back 45

1. Identify activities
2. Identify demand for activities
3. Identify resources consumed by activities

Front 46

What is "activity flexible budgeting"?

Back 46

Planned demand for activities as output changes. Compares expected against actual results to identify variances.

** Drives investigation into root causes of variance and possible corrective actions.