Chapter 5 Accounting planning and forecasting!

Why do we need to budget?

Need to know how much to spend. and allows you to have a cushion built in.

Top-down budgeting (imposed-budgeting)

Start with the executive managment team and a strategic plan and tell operational managers what the budget is.

What is a con to top-down budgeting?

It is missing out on expertise

Participative Budgeting (bottom-up)

Budget preparation that begins with the lowest level of managment and is adjusted at each level to align with the strategic plan.

What are pros to participative budgeting

1. Lower level managment has more detail = more accurate

2. Lower level managment motivated to meet budgets they helped create

What are cons to participative budgeting?

1. Too complex and to time consuming

2. Padding the budget

Incremental Budgeting?

means the budget preparation begins with the budget from last year and can be adjusted as needed.

Zero-Based budgeting

means that preparation begins with $0 and you have to fight for every dollar

Rolling budgets?

always includes 12 months of data, so as you move forward the oldest month falls off.

What is a standard cost?

A budget for a single unit of products

How to find standard cost

Standard cost= standard quanity x standard price

Beggining inventory = what?

ending inventory from the previous month.

Current period sales

what we need to meet are projected sales for that month

Ending inventory

Cushion-excess inventory to meet planned or unplanned needs

How to calculate ending inventory

Percent given to you multiplied by the next month

How to find your beginning inventory

Percent given to you multiplied the month we started with.

How to find the total amount to produce?

Current sales+ending inventory-beginning inventory

For your direct materials budget how do you find your quanity for production?

X standard quantity per case multiplied by the cases to produce

How do you find your ending inventory in direct materials budget?

Cases to produce for next month multiplied by your standard quanity per case then multiplied by your percentage given to you.

How to find your beginning inventory for the direct materials budget?

Quantity for production multiplied by the percentage given to you

How to find your quantity to purchase for the direct materials budget

quantity for production + ending inventory - beginning inventory

How to find the direct materials budget?

Quantity to purchase multiplied by the standard price per Lb.

What is the sales revenue budget?

It calculates the expected sales revenue which is the No. of units to sell multiplied by the sales price per unit.

Production budget

It calculates the quantity and cost of DM to purchase. [No. of units to produce multiplied by DM quantity per unit] + DM quantity (cushion) in ending inventory - DM quantity in beginning inventory = quantity to purchase multiplied by the standard price per unit of input.

Direct labor budget

No. of units to produce multiplied by the direct labor hours per unit multiplied by the wage rate per DLH.

Cash Receipts Budget

Calculation depends on cash collection policies. Relies on sales revenue budget

cash payments budget

depends on cash payment policies and relies on direct materials budget