Ch 7: Master Budget for Merchandise Companies

Budget

a financial plan that managers use to coordinate a business's activities

Managers use budgets to

develop strategies, plan and budget for specific actions, achieve goals, implement plans, and take corrective action

Budgeting requires managers to

plan for the company's future

Creating a budget facilitates

coordination and communication

A budget provides a ____ that motivates employees and helps managers evaluate performance

benchmark

Benchmarking

the practice in comparing a company with its prior performance or with best practices from other companies

To achieve the benefit of motivating employees, the budget should include

input from all levels of the company

Participative budget

a budgeting process where those individuals who are directly impacted by a budget are involved in the development of the budget

Participative budgets tend to be

achievable but not challenging

A budget should be

challenging and achievable

Managers must

support the budget, show employees how budgets can help them achieve better results, and require that employees participate in developing the budget

Budgetary slack

occurs when managers intentionally understate expected revenues or overstate expected expenses

Some companies will use ___ to create a budget and modify for expected changes

the previous year's results

Managers must only justify changes to a budget from the

previous year's actual results

Zero Based Budget

all revenues and expenses must be justified for each new period, previous year's results are ignored

Strategic budget

long term financial plan and goals

Operational budget

short

Continuous Budget

An operational budget in which one month is added as each goes by

Static budget

a budget prepared for only 1 level of sales volume

Flexible budget

a budget prepared for various levels of sales volume

Budgets are based on

fixed vs variable costs

Master budget

a set of budgeted financial statements and supporting schedules for an entire organization

A master budget includes which 3 types of budgets?

sales, inventory purchases, and selling and administrative expense

The cornerstone of the master budget is

the forecast of sales revenue

The cost of goods sold computation shows the relationship between

inventory, purchases, and ending inventory