A formal written statement of management's plans for a specified future time period, expressed in financial terms.
What is a budget?
100
The "bottom to top" approach to budgeting.
What is participative budgeting?
100
Derived from sales budget plus the desired change in ending finished goods (ending finished goods less the beginning finished goods units)
What is the production budget?
100
Shows anticipated cash flows
Often considered to be the most important output in preparing financial budgets
Contains three sections:
Cash Receipts
Cash Disbursements
Financing
Shows beginning and ending cash balances
What is the cash budget?
200
Requires management to plan ahead, provides objectives for evaluating perfomance, and creates an early warning system for potential problems.
What are the benefits of budgeting?
200
More accurate budget estimates because lower level managers have detailed knowledge and the tendency to perceive the process to be fair.
What are the advantages to participative budgeting?
200
Shows both the quantity and cost of direct materials to be purchased
What is the direct materials budget?
200
starting point and key factor in developing the master budget
What is the sales budget?
300
It allows for disciplanary action to be taken at all levels of an organization.
What is not a benefit of budgeting?
300
Can be time consuming and costly and can foster "gaming" with the budgetary numbers.
What are the the disadvantages to participative budgeting?
300
Shows both the quantity of hours and cost of direct labor necessary to meet production requirements
What is direct labor budget?
300
Disproportionately high labor costs
Lower profits due to additional salaries
Increased staff turnover due to lack of challenging work
What is being over-staffed?
400
Monthly, quarterly, and yearly.
What are the normal budgeting time periods?
400
Individual budgets that result in the preparation of the budgeted income statement – establish goals for sales and production personnel
What are Operating budgets
400
Shows the expected manufacturing overhead costs for the budget period
Distinguishes between fixed and variable overhead costs
What is the overhead budget?
400
Lost revenues because existing and future client needs for services cannot be met
Loss of professional staff due to excessive work loads
What is being under-staffed?
500
General economic conditions, industry trends, market research studies, previous market share, and price changes.
What are factors to consider when budgeting?
500
The capital expenditures budget, the cash budget, and the budgeted balance sheet – focus primarily on cash needs to fund operations and capital expenditures
What are financial budgets?
500
Projection of anticipated operating expenses
What is the sales and admin budget?
500
budget process differs significantly from that of a profit-oriented company
Budget on the basis of cash flows (expenditures and receipts), not on a revenue and expense basis
The starting point is usually
expenditures, not receipts
Management’s task is to find
receipts needed to support
planned expenditures