Budgeted financial statements
This budgeted financial statement forecasts a company's revenues, expenses, and profit for a future period.
What is the Budgeted Income Statement?
This is typically the very first step in the budgeting process, as all other operational budgets depend on its forecast.
What is preparing the Sales Budget?
This type of variance simply calculates the difference between the actual amount spent and the original budgeted amount.
What is a Static Budget Variance?
This is the initial step in variance control where a manager calculates the difference between actual results and the budget to see if a significant problem exists.
What is Identifying or Calculating the Variance?
This is the most common budgeting approach, where the new budget is based on the previous period's budget or actual results, often with a small incremental increase or decrease.
What is Incremental Budgeting?
This statement forecasts the expected cash inflows and outflows, helping to identify potential shortfalls or surpluses.
What is the Budgeted Statement of Cash Flows?
After the sales budget, this budget is created to determine how many units need to be produced to meet sales goals and manage inventory.
What is the Production Budget?
This type of analysis is more useful than a static variance because it flexes the budget to the actual level of activity before comparing.
What is Flexible Budgeting or Flexible Budget Variance?
This principle states that managers should only investigate variances that exceed a predetermined dollar amount or percentage, as investigating every small deviation is inefficient.
What is Management by Exception?
This rigorous methodology requires managers to build their budget from a "zero base," justifying every single expense as if the budget were brand new.
What is Zero-Based Budgeting (ZBB)?
This "snapshot" budgeted statement projects the company's assets, liabilities, and equity at a specific future date
What is the Budgeted Balance Sheet?
This budget forecasts the costs of raw materials, direct labor, and manufacturing overhead needed for the production budget.
What is the Cost of Goods Sold (COGS) Budget? or What are the Direct Materials, Direct Labor, and Overhead Budgets?
In standard costing, this variance measures the difference between the actual price paid for an input and its standard price, multiplied by the actual quantity used.
What is a Price Variance?
If a favorable materials price variance is achieved by purchasing low-quality raw materials, it may cause this unfavorable variance in the production department due to higher waste.
What is an Unfavorable Materials Quantity (Efficiency) Variance?
This methodology directly links the budget to the strategic objectives of the organization, funding activities and resources based on how they contribute to specific goals.
What is Activity-Based Budgeting (ABB)?
Often the starting point for the entire master budget, this schedule details the projected unit sales and expected selling prices.
What is the Sales Budget?
Once all the operating budgets are complete, these two key schedules are prepared before the budgeted income statement and balance sheet can be finalized.
What are the Capital Expenditures Budget and the Cash Budget?
This variance measures the difference between the actual quantity of an input used and the standard quantity that should have been used for the actual output, multiplied by the standard price.
What is an Efficiency Variance?
This is the process of determining the underlying root cause of a significant variance, which could involve faulty standards, operational inefficiencies, or unexpected market shifts.
What is Variance Analysis or Investigating the Root Cause?
This continuous budgeting approach maintains a constant time horizon by adding a new budget period (e.g., a month or quarter) as the current one expires.
What is a Rolling (or Continuous) Budget?
This is the comprehensive set of budgeted financial statements, including the income statement, balance sheet, and cash flow statement.
What is the Master Budget?
This is the final, integrative step where the budgeted income statement, balance sheet, and cash flow statement are checked to ensure they are mathematically consistent and aligned.
What is the Final Review and Reconciliation?
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What is the creation of the Master Budget?
If actual sales are higher than budgeted, this variance breaks down the total revenue difference into the part due to selling more units and the part due to getting a different price per unit.
What is Sales Volume Variance and Selling Price Variance?
This is the final, crucial step in the control cycle where managers take corrective action, adjust future budgets, or revise standard costs based on the findings of the variance analysis.
What is Implementing Corrective Actions or Feedback and Control?
This comprehensive budgeting philosophy extends the budget timeline to 3-10 years, tightly links strategic goals with operational plans and resource allocation, and is often driven by a "balanced scorecard" of financial and non-financial metrics.
What is Strategic Budgeting?