Chapter 8

Question 0

What is planning?

Answer 0

Developing goals and preparing various budgets to achieve these goals

Question 1

What is a budget?

Answer 1

Detailed plan for the future that is usually expressed in formal quantitative terms.
Actual spending compared to the budget to make sure plan being followed.
Used to PLAN and CONTROL

Question 2

What is controlling?

Answer 2

Gathering feedback to ensure that the plan is being properly executed or modified as circumstances change

Question 3

Advantages of budgeting? (6)

Answer 3

Communicate managements plans throughout the org.
Force managers to think about and plan for the future.
Provides all means of allocating resources to these parts of the org where they can be used most effectively.
Can uncover potential bottlenecks before they occur.
Coordinate the activities of the entire org by integrating the plans of its various parts.
Define goals and objectives that can serve as benchmarks for evaluating subsequent performance.

Question 4

What is responsibility accounting?

Answer 4

Holding managers accountable for those items that the manager can actually control to a significant extent.

Question 5

What is a continuous or perpetual budget?

Answer 5

12-month budget that rolls forward one month (or quarter) as the current month (or quarter) is completed.

Question 6

What is a self-imposed or participative budget?

Answer 6

Prepared with the full-cooperation and participation of managers at all levels

Question 7

Advantages of self-imposed budgets (4)

Answer 7

Individuals at all levels recognized as members of the team.
Budget estimates prepared by front-line management are usually more accurate and reliable.
Motivation is higher when individuals participate in setting their own goals.
When manager can’t meet budget imposed from above can always say it was too realistic.

Question 8

2 limitations of self-imposed budgeting

Answer 8

Lower-level managers may make suboptimal budgeting recommendations if lack the broad strategic perspective possessed by top managers.
May allow low-level managers to create too much budgetary slack.

Question 9

What is a master budget?

Answer 9

Consists of a number of separate but interdependent budgets that formally lay out the company’s sales, production, and financial goals

Question 10

What is a sales budget?

Answer 10

Detailed schedule showing the expected sales for the budget period.
If this budget is wrong, the rest of the budget will be too.
Feeds into the production budget.

Question 11

What is the cash budget?

Answer 11

Detailed plan showing how cash resources will be acquired and used.

Question 12

What is the production budget?

Answer 12

Prepared after the sales budget. Lists the number of units that must be produced to satisfy sales needs and provide for the desired ending finished goods inventory.

Question 13

What is the production budget influenced by?

Answer 13

The desired level of ending finished goods inventory.

Question 14

What is a merchandise purchases budget?

Answer 14

Used by merchandising companies instead of a production budget (used by manufacturing companies)
- shows amount of goods to be purchased from suppliers during the period

Question 15

What is a direct materials budget?

Answer 15

Prepared after production requirements have been computed.
- details the raw materials that must be purchased to fulfill the production budget and provide for adequate inventories.

Question 16

What is the direct labor budget?

Answer 16

shows the direct labor hours required to satisfy the production budget.

Question 17

What is the manufacturing overhead budget?

Answer 17

Lists all costs of production other than direct materials and direct labor.

Question 18

What is the ending finished goods inventory budget?

Answer 18

Computes the cost of unsold units

Question 19

What is the selling and administrative expense budget?

Answer 19

Lists the budgeted expenses for areas other than manufacturing

Question 20

What are the 4 sections of the cash budget?

Answer 20

Receipts, disbursements, cash excess or deficiency, financing

Question 21

What does the receipt section show?

Answer 21

Lists all cash inflows except financing expected

Question 22

What does the disbursements section show?

Answer 22

All cash payments planned for budget period

Question 23

What does the financing section show?

Answer 23

The borrowings, principal, and interest repayments projected to take place

Question 24

What Is the budgeted income statement?

Answer 24

Shows the company’s planned profit. Serves as benchmark against which subsequent company performance can be measured

Question 25

What is the budgeted balance sheet?

Answer 25

Developed using data from the balance sheet from the start of the budget period and data contained in the various schedules

Question 26

What’s the importance of participative budgeting? (4)

Answer 26

Individuals at levels recognized as members of the team.
Budget estimates prepared by front-line managers are more accurate.
Motivation is higher when participate in setting own goals.
Manager unable to meet budget from above can say it was unrealistic and impossible.

Question 27

What is the sales budget and equation?

Answer 27

Detailed schedule showing expected sales for the budget period.
Unit sales x selling price = total sales

Question 28

What is the production budget?

Answer 28

Lists the number of units that must be produced to satisfy sales needs and to provide for the desired ending finished goods inventory.

Question 29

What is the direct materials budget?

Answer 29

Details the raw materials that must be purchased to fulfill the production budget and provide for adequate inventories