Acc 220 - Chapter 22,23,24 Exam

Budget

a formal written statement of management’s plans for a specified future time period, expressed in financial terms

Control device

important basis for performance evaluation once adopted

Essentials of budgeting

inspire higher levels of performance or discourage additional effort

Participative budgeting

each level of management should be invited to participate, greater chance of acceptance if all levels of management have provided input into the budgeting process

Master budget

set of interrelated budgets that constitutes a plan of action for a specified time period, contains two classes of budgets

Operating budgets

preparation of the budgeted income statement

Financial budgets

capital expenditures budget, cash budget, and budgeted balance sheets

Components of the master budget

1. Sales Budget

2. Production Budget

   1. Direct materials

   2. Direct labor

   3. Manufacturing overhead

3. Selling and Administrative Expense Budget

4. Budgeted Income Statement

   1. Capital expenditure

   2. Cash

   3. Budgeted balance sheet

Sales budget

1st budget prepared

Every other budget depends

Derived from sales forecast

Expected unit sales volume for each product * anticipated unit selling price

Production budget

Shows units that must be produced to meet anticipated sales

Derived from sales budget plus the desired change in ending finished goods inventory

Expected sales units + desired ending finished goods units - beginning finished goods units = required production units

Direct materials budget

Shows quantity and cost of direct materials to be purchased

Units to be produced * Direct materials per unit = direct materials required for production

Direct materials units to be purchase

Direct materials required for production + desired ending direct materials units - beginning direct materials units = direct materials units to be purchased

Cost of direct materials purchases

Direct materials units to be purchased * cost per direct materials unit = cost of direct materials purchases

Direct labor budget

shows both quantity of hours and cost of direct labor necessary to meet production requirements

critical in maintaining a labor force

Direct labor cost =

units to be produced * direct labor hours per unit * direct labor per hour

Budgeted income statement

Important end-product of operating budgets

Indicated expected profitability of operations

Prepared from operating budgets

Cash budget

shows anticipated cash flows

important output in preparing financial budgets

3 sections: cash receipts, cash disbursements, and financing

Budgetary control

use of budgets in controlling operations

budget reports

compare actual results with planned objectives

provides management with feedback on operations

prepared as frequently as neede

Budgetary control activities

1. develop budget

2. analyze differences between actual and budget

3. take corrective action

4. modify future plans

static budget

a projection of budget data at a single level of activity

ignores data for different levels of activity

compares actual results with budget data at the activity level used in the master budget

flexible budget

project budget data for various levels of activity

more useful if its adaptable to changes

can be prepared for each type of budget in master budget

responsibility reports

distinguishes between controllable and noncontrollable items

emphasizes or includes only items controllable by the individual manager in performance reports

Standard costs

common in business and management

represent the amount management thinks should be incurred to produce ONE good or service

predetermined unit costs

Ideal standards

represent optimum levels of performance under perfect operating conditions

Normal standards

represent efficient levels of performance that are attainable under expected operating conditions

should be rigorous but attainable

most companies set standards at this level

total standard cost per unit

sum of standard costs of direct materials, direct labor, and manufacturing overhead

Favorable variances

actual costs are less than standard costs

Unfavorable variances

actual costs are more than standard costs

Price variance

(actual quantity (AQ) * actual price (AP))+ (AQ * standard price (SP))

Quantity variance

(AQ * SP) + (standard quantity (SQ) * SP)

Total materials or labor variance

(AQ * AP) + (SQ * SP)

Labor price variance

(actual hours (AH) * actual rate (AR) - (AH * standard rate (SR))

Labor quantity variance

(AH * SR) - (standard hours (SH) * SR)

Total overhead variance

Actual overhead - overhead applied

operating budgets

establish goals for the company’s sales and production personnel

master budget

a set of interrrelated budgets that constitutes a plan of action for a specified time period

participative budgeting

reduces the risk of having unrealistic budgets

financial budgeting

include the cash budget and the budgeted balance sheet

sales forecast

the budget is formed within the framework of a…

long-range plans

contain considerably less detail than budgets