Master Budgeting CH8

Master Budgeting CH8

1. Budget A detailed plan for the future that is usually in formal quantitative terms

2. Perpetual budget 12-month budget that continuously rolls forward 1 month or 1 quarter

3. Planning developing goals and preparing various budgets to achieve those goals

   • Control gathering feedback to ensure that the plan is being properly executed or modified as circumstances change

4. Organizations create budgets:

   • 1. Encourage managers to think and plan for the future
     • 2. communicate financial goals to the organization
       • 3. allocate resources where they can be used most effectively
         • 4. coordinate the plans and activities of managers
           • 5. uncover bottlenecks before they happen
             • 6. Improve efficiency and effectiveness of operations
               • 7. Evaluate and reward employees

5. Self-imposed budget or participative budget A method of preparing budgets in which managers prepare their own budgets. These budgets are then reviewed by higher-level managers, and any issues are resolved by mutual agreement.

6. Master budget A number of separate but interdependent budgets that formally lay out the company’s sales, production, and financial goals and that culminates in a cash budget, budgeted income statement, and budgeted balance sheet.

7. Sales budget A detailed schedule showing expected sales expressed in both dollars and units.

8. Production budget A detailed plan showing the number of units that must be produced during a period in order to satisfy both sales and inventory needs

9. Merchandise purchases budget A detailed plan used by a merchandising company that shows the amount of goods that must be purchased from suppliers during the period.

10. Direct materials budget A detailed plan showing the amount of raw materials that must be purchased to fulfill the production budget and to provide for adequate inventories.

11. Direct labor budget A detailed plan that shows the direct labor-hours required to fulfill the production budge

12. Manufacturing overhead budget A detailed plan showing the production costs, other than direct materials and direct labor, that will be incurred over a specified time period.

13. Ending finished goods inventory budget A budget showing the dollar amount of unsold finished goods inventory that will appear on the ending balance sheet.

14. Selling and administrative expense budget A detailed schedule of planned expenses that will be incurred in areas other than manufacturing during a budget period.

15. Cash Budget has 4 main sections: Cash receipts, cash distributions, excess or deficiency, financing

16. Budget income statement shows the company’s planned profits and serves as a benchmark against which subsequent company performance can be measured

17. Budgeted balance sheet developed from data from the balance sheet and various schedules

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