Topic 6 Flashcards

what is a budget

plan for a certain period

what is the process of preparing a budget called?

budgeting

authorization function of budget is especially for (2)

goverment and non profits

why firms need budgets? (6)

1. communicating plans

2. defining goals and objectives

3. means for allocating resources

4. motivating employees to attain goals

5. evaluating performance

6. coordinating activities

what is zero based budgeting?

everything needs to be justified

what is base budgeting or incremental budgeting

any increase above the initial budget will need to be justified

what is authoritative budgeting

top managements prepare budgets

what is participative budgeting

employees throughout the org help prepare the budget

what is the behavioral issues in budgeting

goal congruence

what is goal congruence

degree of consistency between goals of the firm and employees

what determines goal congruence

• employee participation in the budgeting proceses

• how hard the budget target

• conpensation and how its linked to budgeted performance

what is budgetary slack/padding the budget

practice of purposely under or overestimating target to enhance performance

what is the budget ratchet effect

using all resources to avoid future budget reductions

what is a master budget?

comprehensive budget for a certain period

_{what is a operating budget}

identify resources needed

what is financial budget?

identify sources and uses of funds

budget production depends on (2)

expected sales

production capacity

ending inventory formula

Beginning inventory + Added-in inventory – Transferred-out inventory = Ending inventory

Exercise 1

Exercise 2

what is direct material budget

estimates of material

what is direct labor budget

estimates of DL hours

Example slide 17 - 22

why do firms need a cash budget?

to determine if you have enought cash to sustain operations

for manufacturing firms, what is the main cash outflow…

the payment for inputs of production and other sales related activities

for merchandising firms what is the main cash outflow

purchase the

products from suppliers

when is cash inflow recorded

$ is received

when are cash outflow recorded

when $ is paid

Example: Cash receipts from Credit Sales

Exercise 1: Cash Planning

Exercise 1I: Cash Planning

case study