BUS202 Exam 2 Review: Conceptual

What makes up the master budget?

Financial budgets and operating budgets

What makes up financial budgets?

• Capital expenditure budget

• Cash budget

• Budgeted balance sheets

What makes up operating budgets?

• Sales budgets

• Production budgets (DM, DL, MO)

• Selling and Admin budgets

• Personnel budgets

How do we calculate units to produce?

Expected Sales Units + Desired Ending Finished Goods Units - Beginning Finished Goods Units

What is cost structure?

Relative proportion of fixed versus variable costs that a company incurs

What effect does cost structure have on a company's sales and profit?

May have a significant effect on profitability

Under what situation should a company accept a special order for less than the asking selling price?

When incremental revenues exceed incremental costs.

What will most likely occur if a company eliminates an unprofitable segment when a portion of segments are unavoidable?

Net income will likely increase

What is the primary difference between a flexible budget and a static budget?

Static: prepared for a single level of activity

Flexible: adjusted for different activity levels

What is the purpose of a flexible budget?

To project the budget data for various levels of activity

What is a profit center?

A business segment whose manager has control over cost and revenue

What is an investment center?

A business segment whose manager has control over cost, revenue, and investments

What is a cost center?

A business segment whose manager has control over cost

What is an opportunity cost?

The most desirable alternative given up as the result of a decision

What is a sunk cost?

A cost that has already been committed and cannot be recovered

What is a relevant cost?

The costs and revenues that differ across alternatives

What are the characteristics of variable costs?

Vary in total directly and proportionately

Remain the same per unit at every activity level

What are the characteristics of fixed costs?

Remain the same in total at every activity level

Vary inversely with activity

What is the relevant range?

The range over which a company expects to operate during a year

When you have more than one item, what should you do to increase your income?

Increase the contribution margin for the items

What is the master budget?

Set of interrelated budgets that constitutes a plan of action for a specified time period