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23 Cards in this Set
- Front
- Back
Budget
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Budget: Business plan in financial terms
Budgeting involves Establishing specific goals Executing plans to achieve goals Periodically comparing results with goals |
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Objectives of Budgeting
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1)establishing specific goals
2)executing plans to achieve the goals 3)periodically comparing actual results with the goals |
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Human Behavior
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human behavior problems can arise if the budget is unachievable(too high), the budget goal is very easy to achieve(too loose), or the budget goals of the business conflict with the objectives of the employees(goal conflict)
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Setting Budget Goals Too Tightly
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people can become discouraged if performance expectations are set too high
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Setting Budget Goals Too Loosely
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it is undesirable to plan lower goals than may be possible which is called budget "padding" or budgetary slack
Slack budgets can cause employees to develop a "spend or lose it" mentality. This often occurs at the end of the budget period when actual spending is less than the budget. Employees may attempt to spend the remaining budget (purchase equipment,hire consultants, purchase supplies) in order to avoid having the budget cut next period. |
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Setting Conflict Budget Goals
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goal conflict occurs when individuals self-interest differs from business objectives.
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Continuous Budgeting
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a variation of fiscal-year budgeting that maintains a 12 month projection into the future.
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Zero-based budgeting
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requires managers to estimate sales, production, and other operating data as though operations are being started for the first time.
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Static budget
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a static budget shows the expected results of a responsibility center for only one activity level.
a disadvantage of static budgets is that they do not adjust for changes in activity levels. |
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Flexible Budget
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flexible budgets show the expected results of a responsibility center for several activity levels.
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Sales budget
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the sales budget normally indicates for each product, the quantity of estimated sales and the expected unit selling price
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Production Budget
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the number of units to be manufactured to meet budgeted sales and inventory needs for each product
Expected units sold +Desired units in ending inventory -Estimated units in the beginning inventory ___________________________ Total units to be produced |
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Direct Materials Purchases Budget
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the production budget is the starting point for determining the estimated quantities of direct materials to be purchased. Multiplying these quantities by the expected unit purchase price determines the total cost of direct materials to be purchased
Materials required for production +Desired ending materials inventory -Estimated beginning materials inventory __________________________ Direct materials to be produced |
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Cost of Goods Sold Budget
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the direct materials purchases budget, direct labor cost budget, and factory overhead cost budget are the starting point for preparing the cost of goods sold budget
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Cash Budget
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presents expected receipt(inflows) and payments(outflows) of cash for a period of time
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Master budget
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A master budget is a combination of budgets linked to form budgeted income statement & budgeted balance sheet.
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Cost of goods sold budget
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derived from the sales & production budgets, includes beginning finished goods & work in process inventories and subtracts ending finished goods & work in process inventories .
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How many budgets make up the budgeted Balance Sheet?
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2 budgets make up a budgeted Balance Sheet:
Cash budget projects operating cash inflows & outflows Capital expenditures budget projects cash outflows for PPE . |
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STANDARDS
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Standards are performance goals
Standard costs systems Provide a measure for performance Allow measurement of variances from performance goals Standards should be revised as necessary |
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MEASURING CHANGES IN UNIT VARIABLE COSTS
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Given: Fixed costs = $840,000; unit CM = $250 – 145 = $105
Break-even sales = $600,000 / 20 = 8,000 units 840,000 / {105 – ($250*2%)} = 8,400 When unit variable cost increased by $5, break-even units increased by 400. |
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Budgetary performance evaluation
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compares actual performance to budget projections.
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Non-financial measures
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can augment financial measures for performance evaluation to avoid goal conflicts.
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NON-FINANCIAL PERFORMANCE MEASURES
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Inventory turnover
On-time delivery Lapsed time order to delivery Customer preference rankings Response time Product development time Employee satisfaction Customer complaints |