Types of Budgets
A set of interrelated budgets that becomes a plan of action for a specific time period.
What is a master budget?
What are direct costs?
An estimate of the quantity and cost of direct materials to be purchased.
What is a direct materials budget?
The first step in the budgeting process.
A group responsible for coordinating the preparation of the budget.
What is a budget committee?
Developed by upper management with little or no input from other organizational levels.
What are indirect costs?
An estimate of the quantity and cost of direct labour requirements.
What is a direct labour budget?
These broad categories compose the master budget.
What are operating budgets and financial budgets?
Intentional under or over estimations in order to make it easier to achieve budgetary goals.
What is budgetary slack?
An approach that works upward so that managers at all levels participate.
What is a participative (bottom up) budget?
Costs that do not vary with the activity level, such as units produced.
The projection of potential sales for the industry and the company's expected share of these sales.
What is a sales forecast?
Derived from the Sales Budget and desired ending finished goods inventory.
What is a production budget?
Long-term budgets with less detail.
What are strategic budgets?
Focuses on continuous forecasting the next period as the current period drops off.
What is a rolling budget?
Costs that vary with the activity level, such as units produced.
What are variable costs?
An estimate of mixed costs required to produce the desired quantity of units.
What is a manufacturing overhead budget?
Sound organizational structure, research and analysis, and acceptance by all levels of management.
What are the essentials of effective budgeting?
A formal written statement of management’s plans for a specified future time period, expressed in financial terms.
What is budgeting?
Manager's build a budget from scratch and must defend proposed budgeted amounts.
What is zero-based budgeting?
Costs that contain both a fixed and variable component.
What are mixed costs?
An estimate of the costs of activities required to support the organization.
What is a selling, general and administration (SG&A) budget?
The final step in the operating budget process.
What is a budgeted income statement?
Coordination of effort, greater management awareness and motivation to meet goals.
What are benefits of budgeting?