Master Budget Managerial Accounting Flashcards

Comprehensive vocabulary flashcards covering the Master Budgeting process, including formulas, budgeting types, and responsibility accounting centers.

Budget

A dollar-based plan showing how a firm, organization, or individual will acquire and use financial resources over a set period such as a month, quarter, or year.

Master Budget

A blueprint for the coming period's operations and a framework for adjusting plans when actual events differ from expectations.

Sales Budget

The first budget completed in the master budgeting process because every other budget depends on forecasted sales.

Forecast

An estimate of things a company does NOT control, such as sales driven by customers and the economy.

Internal Variables (Controllable)

Factors that influence a sales forecast that the company can control, including pricing, marketing efforts, and product quality.

External Variables (Uncontrollable)

Factors influencing a sales forecast that the company cannot control, such as customer preferences, economic conditions, and competitor behavior.

Dynamic Budgeting

The continuous comparison of actual results to forecasts and the adjustment of production and cost budgets mid-period as new information arrives.

Production / Purchase Budget Formula

$$\text{Projected sales} + \text{Desired ending inventory} - \text{Beginning inventory} = \text{Amount to produce/purchase}$$

Direct Materials Budget

A budget that determines how much material needs to be purchased or made available for production.

Direct Labor Budget

A budget that utilizes the production budget to determine the number of employees required at the budgeted production level.

Manufacturing Overhead Budget

A budget estimating indirect production costs such as supervisor salaries, maintenance, factory rent, and equipment depreciation that must be allocated.

Period Cost Budgets

Budgets for non-manufacturing costs like administration and office rent, which are covered by the budgeted gross margin.

Cash Inflows

The part of the cash budget derived from the sales forecast and adjusted for collection terms.

Cash Outflows

The part of the cash budget derived from cost budgets and adjusted for payment terms.

Purpose of the Cash Budget

To identify coming cash surpluses or deficits before they happen so steps like arranging loans can be taken in advance.

Incremental Budgeting

Building a new budget by making incremental percentage changes to the current budget; ideal for stable, established businesses.

Zero-based Budgeting

A budgeting method where every expenditure is planned anew from scratch rather than building on the prior period's budget.

Responsibility Accounting

A system in which managers are assigned and held accountable for certain costs, revenues, or assets.

Cost Center

An organizational unit where the manager has control over only the costs incurred, such as a specific factory.

Profit Center

An organizational unit, such as a division, where the manager has responsibility for both revenues and costs.

Investment Center

An organizational unit where the manager is responsible for costs, revenues, profits, and assets, including funds invested and the rate of return.

Purchases Calculation (from Sales)

$\text{Purchases} = \text{Sales} \times \text{COGS \%}$, assuming inventory remains constant.

Total Cash Collections

The sum of the current month's cash sales plus credit collected from the current month's sales and prior months' sales based on collection percentages.