Managerial Accounting: Master Budgeting, Responsibility Accounting, and Costing Methods

Comprehensive vocabulary flashcards covering master budgeting schedules, responsibility accounting performance measures (ROI and residual income), and variable versus absorption costing.

Budget

A detailed plan for using financial and other resources over a specified future time period.

Continuous Budget (Perpetual Budget)

A $12$-month budget that continuously rolls forward as time passes

Planning (in Budgeting)

Setting objective and preparing budgets to achieve them

Control (in Budgeting)

Comparing actual results with budgets to help meet planned objectives

Self-Imposed Budget (Participative Budget)

A budget prepared with the full cooperation and participation of managers at all levels rather than being imposed strictly from the top down.

Budgetary Slack

building extra room into a budget by setting easier targets than expected

Master Budget

The overall collection of budgets preapeared for the organization

Sales Budget

The starting schedule of the master budget that outlines expected unit sales and unit prices to determine total sales revenue, along with a schedule of expected cash collections.

Production Budget

A schedule detailing the number of units that must be manufactured to satisfy budgeted sales and provide for the desired ending finished goods inventory.

Merchandise Purchases Budget

The merchandising company equivalent of a manufacturing production budget, detailing the quantity of goods to buy from suppliers to meet sales needs and maintain ending inventory.

Direct Materials Budget

A schedule specifying the quantity and total cost of raw materials required to meet production needs while providing for desired ending raw materials inventory.

Direct Labor Budget

A schedule showing the direct labor hours and labor costs required to satisfy production needs based on labor rate standards.

Manufacturing Overhead Budget

A schedule of all expected manufacturing costs other than direct materials and direct labor, separated into variable and fixed portions and identifying noncash charges such as depreciation.

Selling and Administrative Expense Budget

A schedule that details planned non-manufacturing operating expenses, split into variable and fixed components and deducting noncash expenses to compute cash disbursements.

Cash Budget

A detailed schedule of cash resources composed of four main sections: cash receipts, cash disbursements, cash excess or deficiency, and financing.

Decentralization

giving lower level managers, authority to make decisions

Responsibility Accounting

A system where managers are held accountable for those items—and only those items—that they can actually control to a significant extent.

Responsibility Center

Any organizational segment whose manager has control over and is held accountable for cost, profit, or investments.

Cost Center

A responsibility center segment whose manager has control over costs, but has no control over revenues or investment funds.

Profit Center

A responsibility center segment whose manager has control over both costs and revenues, but no control over investment funds.

Investment Center

A responsibility center segment whose manager has control over costs, revenues, and investments in operating assets.

Operating Assets

Cash, accounts receivable, inventory, plant and equipment, and other productive assets held for operating purposes, typically measured at net book value.

Return on Investment (ROI)

A performance measure calculated as: $\text{ROI} = \frac{\text{Net operating income}}{\text{Average operating assets}}$.

Margin (in ROI)

A measure of operating performance and cost control calculated as: $\text{Margin} = \frac{\text{Net operating income}}{\text{Sales}}$.

Turnover (in ROI)

A measure of how efficiently operating assets generate revenue, calculated as: $\text{Turnover} = \frac{\text{Sales}}{\text{Average operating assets}}$.

Residual Income

The net operating income an investment center earns above a minimum required return on operating assets: $\text{Residual income} = \text{Net operating income} - (\text{Average operating assets} \times \text{Minimum required rate of return})$.

Variable Costing

A costing method in which only variable production costs (direct materials, direct labor, and variable manufacturing overhead) are treated as product costs, while fixed manufacturing overhead is expensed as a period cost.

Absorption Costing

A costing method that treats all manufacturing costs (direct materials, direct labor, variable manufacturing overhead, and fixed manufacturing overhead) as product costs.

Fixed Manufacturing Overhead Deferred in Inventory

The amount of fixed manufacturing overhead capitalized in ending inventory under absorption costing when units produced exceed units sold, causing absorption income to exceed variable income.

Fixed Manufacturing Overhead Released from Inventory

The amount of fixed manufacturing overhead previously capitalized in beginning inventory that flows into cost of goods sold under absorption costing when units sold exceed units produced, causing variable income to exceed absorption income.

Segment

Any part or activity of an organization about which managers seek cost, revenue, or profit data

Variable costing

A costing method that includes only variable manufacturing costs—direct materials, direct labor, and variable manufacturing overhead—in unit product costs.

Another name associated with variable costing?

Direct costing or marginal costing

Absorption Costing

A costing method that includes all manufacturing costs—direct materials, direct labor, and both variable and fixed manufacturing overhead—in unit product costs.

Absorption cost treats all manufacturing costs as _____, regardless of _______ or ________.

Product; Variable; Fixed

Absorption costs include?

Direct Materials, Direct Labor, Variable Manufacturing overheads, Fixed manufacturing overhead

Product costs

Cost included in inventory until the product is sold

Period Cost

Cost expensed during the period they occur