Budgetary Planning and the Master Budget

A set of vocabulary flashcards covering the essentials of effective budgeting, the master budget components, and specific operational budgets based on the lecture notes.

Budget

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

Participative Budgeting

An approach to budget-setting where each level of management is invited to participate in the process to inspire performance and produce a budget perceived as fair.

Budgetary Slack

A form of budgetary "gaming" that can occur in participative budgeting where managers might provide less accurate estimates.

Long-range planning

A planning process that identifies long-term goals and strategies, typically covering a time period of at least $5$ years.

Master Budget

A set of interrelated budgets that constitutes a plan of action for a specified time period.

Operating Budgets

Individual budgets, including sales and production, that result in the preparation of the budgeted income statement.

Financial Budgets

Budgets that focus primarily on the cash resources needed to fund expected operations and planned capital expenditures, including the capital expenditures budget, cash budget, and budgeted balance sheet.

Sales Forecast

A projection used to develop the budget that shows potential industry sales and a company’s expected share of those sales.

Sales Budget

The first budget prepared in the master budget, derived from the sales forecast and representing management’s best estimate of sales revenue.

Production Budget

A projection showing the units that must be produced to meet anticipated sales, calculated by adding desired ending finished goods inventory to budgeted sales minus beginning finished goods inventory.

Direct Materials Budget

A budget that shows both the quantity and cost of direct materials to be purchased for production.

Direct Labor Budget

A budget used to determine the quantity of hours and cost of direct labor necessary to meet production requirements.

Manufacturing Overhead Budget

A projection of expected manufacturing overhead costs for the budget period, distinguishing between fixed and variable costs.

Selling and Administrative Expense Budget

A projection of anticipated operating expenses that distinguishes between fixed and variable costs.