Chpt 11: Planning Operations

Budgeting Objectives

Establish specific goals, execute plans, and compare actual results with established goals.

Zero-Based Budgeting

Budgeting system where operations are treated as starting fresh, updating last year's data with actuals.

Static Budget vs. Flexible Budget

A static budget remains unchanged across activity levels; a flexible budget adjusts across varying activity levels.

Master Budget

An integrated annual budget that includes operating, investing, and financing budgets.

Sales Budget

Estimates the quantity of estimated sales and the selling price per unit.

Production Budget

Estimates the number of units to be manufactured to meet budgeted sales and desired inventory levels.

Cost of Goods Sold (COGS) Budget

Derived from sales, production, direct materials, direct labor, factory overhead budgets, and inventory levels.

Cash Budget

Details expected cash inflows and outflows during a period for financing activities.

Capital Expenditures Budget

A long-range plan (5 to 10 years) for acquiring fixed assets.

Ideal Standards vs. Normal Standards

Ideal standards represent theoretical perfection; normal standards are currently attainable with reasonable effort.

Favorable Cost Variance

Occurs when actual cost is less than planned (standard) cost.

Unfavorable Cost Variance

Occurs when actual cost is greater than planned (standard) cost.

Direct Materials Variances

Composed of the Direct Materials Price Variance and the Direct Materials Quantity Variance.

Direct Labor Variances

Composed of the Direct Labor Rate Variance and the Direct Labor Time Variance.

Nonfinancial Performance Measures

Measures used alongside financial metrics to evaluate operations and avoid goal conflicts.