acct 2020 chapter 9

budgets help business owners to

plan ahead, exercise control by comparing reality to plan

budgets

are financial plans for the future and a key concept of planning, identify objectives and actions needed

strategic plan

plots direction for an organizations future activities and operations

how long does a strategic plan cover

5 years

budgetary system advanatges

planning, info for decision making, standards for performance eval, improved commuication

master budget

comprehensive plan for organization as a whole

continuous budget

moving 12 month budget

controller

budget director

operating budgets

describe the income generating activities of a firm

financial budgeting

details inflows and outflows of cash and overall position

which budget is prepared first

operating budget

what budgets to know

sales, production, direct materials, direct labor, overhead, selling and admin

sales budget

expected sales in dollars

sale budget formula

price x quantity sold

sales forecast

initial estimate

production budget

how many units produced to meet sales needs

production budget formula

units to be produced = expected unit sales + units in EI - units in BI

direct materials budget

amount and cost of raw materials to be purchased in each time period

direct material budget formula

purchases = needed for production + ending inventory - beginning inventory

direct labor budget

total direct labor hours and cost needed for units in production budget

overhead budget

shows expected cost of all production costs that are not direct materials and direct labor

cost of goods sold budget

expected cost of the goods to be sold

selling and admin budget

outlines expenditures for nonmanufacturing activities

operating income

net income without expenses and taxes

3 financial budgets

cash budgets, budgeted balance sheet, budget for capital expenditures

flexible budget aka

variable budget

before the fact

expected outcomes for range of activity levels

after the fact

budget based on actual level of activity

goal congruence

alignment of managerial and organizational goals

dysfunctional behavior

individual behavior that conflicts with goals

participative budgeting

subordinate managers have a say in how budgets are established

3 potential problems of participative budgeting

setting standards too high or low, building slack into budget, pseudoparticipation

pseudoparticiaption

illusion of involvement from lower level

realistic standards should reflect

actual levels of activity, seasonal variation, efficiencies, general economic trends

controllable costs

costs whose level a manager can influence

myopic behavior

short run actions that brings long run harm