Ch 7

Question 1

define budget

Answer 1

formal statement of company’s future plans

Question 2

define budgeting

Answer 2

processing of planning formal business actions and expressing them as formal plans

Question 3

what three things must mgmt focus on for budgetary analysis?

Answer 3

1. future transactions
2. future events
3. future opportunities available

Question 4

define control function

Answer 4

requirement of mgmt to evaluate (benchmark) business operations against some norm

Question 5

what are the two usual alternatives that evaluating business operations involves comparing actual results against?

Answer 5

1. past performance

2. expected performance

Question 6

when is budgeted performance computed?

Answer 6

after careful analysis and research that attempts to anticipate and adjust for changes in important company, industry and economic factors

Question 7

What are the three important guidelines in budgeting process?

Answer 7

1. Participatory budgeting (employees affected by budget should be consulted when its prepared
2. goals reflected in budget should be attainable
3. evals should be made carefully when opps explain any failures

Question 8

what are some potential negative outcomes of budgeting? (4)

Answer 8

1. some employees might understate sales budgets and overstate expense budgets to allow cushion
2. employees overstate expense budgets for budgetary slack (or cushion) to aid in meeting targets
3. pressure to meet budgets might lead employees in unethical behavior or commit fraud
4. some employees might spend entire budget even if not needed to ensure budgets aren’t reduced next year

Question 9

Which departmental budget drives all other budgets?

Answer 9

sales

Question 10

Budgets figures and estimates developed through what process are usually more useful?

Answer 10

bottom-up process

Question 11

define continuous budgeting

Answer 11

practice of preparing budgets for a selected number of future period and revising those budgets as each period is completed

Question 12

define rolling budgets

Answer 12

new set of budgets a firm adds for the next period (with revisions) to replace the ones that have lapsed

Question 13

what three groups usually determine or influence the budgets

Answer 13

creditors
directors
management

Question 14

define master budget

Answer 14

formal, comprehensive plan for company’s future.

contains several individual budgets that are linked with each other to form a coordinated plan

Question 15

how do mgrs often express the expected financial results of planned budgeted activities

Answer 15

wth budgeted income statement for budget period and

budgeted balance sheet for end of budget period

Question 16

what are the three overall categories that should be included in a master budget

Answer 16

operating budgets
capital expenditures budget
financial budgets

Question 17

what are the six budgets that should be included in the master operating budget

Answer 17

1. sales budget
2. merchandise purchases budget (for merchandisers)
3. production budget (for manufacturers)
4. manufacturing budget (for manufacturers)
5. selling expense budget
6. general and admin expense budget

Question 18

what is the merchandise purchases budget

Answer 18

units to be purchased

Question 19

define capital expenditures master budget

Answer 19

expenditures for plant assets

Question 20

what are the three budgets that should be included in the master financial budget?

Answer 20

1. cash budget (receipts & disbursements)
2. budgeted income statement
3. budgeted balance sheet

Question 21

What are the five steps in creating a master budget?

Answer 21

1. prepare sales budget
2. develop production budget
3. prepare manufacturing, selling and general admin & expense budgets
4. prepare capital expenditures budgets
5. consolidate operating and capital expenditures budgets into financial budgets (cash budget, budget income statement, budgeted balance sheet

Question 22

define sales budget

Answer 22

• plan showing the units of goods to be sold or services to be provided
• the starting point in budgeting process for most departments

Question 23

What two various merchandise purchasing/budgeting decisions take into account?

Answer 23

1. the number of units added to inventory depends on budget sales volume
2. inventory system

Question 24

define safety stock

Answer 24

quantity of inventory or materials over minimum needed to satisfy budgeted demand

Question 25

define merchandise purchases budget

Answer 25

plan that shows the units or costs of merchandise to be purchased by merchandising company during budget period

Question 26

in what two ways is a merchandise purchases budget expressed?

Answer 26

1. units | 2. dollars

Question 27

Merchandise purchases budget in equation form

Answer 27

inventory to be purchased = budgeted ending inventory + budgeted cost of sales for the period - budgeted beginning inventory

Question 28

How to compute number of dollars of inventory to be purchased for budget if merchandise purchases budget is expressed in units and only one product is involved

Answer 28

of dollars of inventory = units to be purchased * cost per units

Question 29

Merchandise Purchases Budget spreadseet

Answer 29

``` Next month's budget sales (units) * Ratio of inventory to future sales (*%) =Budget ending inventory (units) + budgeted sales = required units of available merchandise - beginning inventory (units) = units to be purchased ... budget cost per unit (* units to be purchased) =budgeted cost of merchandise purchases ```

Question 30

define selling expense budget

Answer 30

plan that lists the types and amounts of selling expenses expected in the budget period

Question 31

selling expense budget spreadsheet formula

Answer 31

``` budgeted sales * sales commission percent = sales commissions + salary for sales manager = total selling expenses ```

Question 32

define general and admin expense budget

Answer 32

plan that shows predicted operating expenses not included in the selling expenses budget

Question 33

Why is predicted income tax not included in general and admin budget?

Answer 33

1. not able to figured estimated tax yet as cash has not yet been estimated.

Question 34

define capital expenditures budget

Answer 34

plan that lists dollar amounts to be both received from disposal of plan assets and spent to purchase plan assets

Question 35

at what point in the sequence of budget planning is the capital expenditures budget created?

Answer 35

after operating budgets

Question 36

define capital budgeting

Answer 36

process of evaluating and planning for capital (plant asset) expenditures

Question 37

what does the capital expenditures budget link to in regards to planning

Answer 37

the mgmt's eval of company's ability to take on more debt

Question 38

When is the financial budget created

Answer 38

after the operating and capital expenditures budgets

Question 39

Define cash budget

Answer 39

shows expected cash inflows and outflows during the period

Question 40

What is the general formula for cash budget?

Answer 40

beginning cash balance + budgeted cash receipts - budgeted cash disbursements = preliminary cash balance

Question 41

What two other budgets hold information needed to prepare the cash budget

Answer 41

operating budget | capital expenditures budget

Question 42

define budgeted income statement

Answer 42

accounting report that presents predicted amounts of company's revenues and expenses for budget period

Question 43

Where is information needed for preparing a budgeted income statement found?

Answer 43

primarily from already prepared budgets

Question 44

define budgeted balance sheet

Answer 44

accounting report that presents predicted amounts of company's assets, liabilities and equity balances as of end of the budget period

Question 45

Where is information needed for preparing a budgeted balance sheet found?

Answer 45

primarily from the other budgets

Question 46

define activity-based budgeting (ABB)

Answer 46

budget system based on expected activities

Question 47

define general and administrative expense budget

Answer 47

plan that shows predicted operating expenses not included in the selling expenses budget

Question 48

define manufacturing budget

Answer 48

plan that shows the predicted costs for direct materials, direct labor and overhead to be incurred in manufacturing units in production budget