Chapter 22study guide - Nature and Objectives of Budgeting Objective of Budgeting: o Plan o Direct o Control However PDF

Preview

Summary

Nature and Objectives of Budgeting
Objective of Budgeting:
o Plan
o Direct
o Control
However human behavior can affect budgeting by:
o Setting the budget goal too tight
o Setting the budget goal too loose
o Setting conflicting budget goals...

Description

Chapter 22 - Study Notes Nature and Objectives of Budgeting Objective of Budgeting: o

Plan

o

Direct

o

Control

However human behavior can affect budgeting by: o

Setting the budget goal too tight

o

Setting the budget goal too loose

o

Setting conflicting budget goals

Budgeting Systems Static Budget - shows the expected results of a responsibility center for only one activity level. As disadvantage of static budgets is that they do not adjust for changes i activity levels. Flexible Budget- shows expected results of a responsibility center for several levels of activity. A flexible budget is, in effect, a series of static budgets for different levels of activity. Master Budget - is an integrated set of operating and financial budgets for a period of time. A master budget includes: Operating Budgets o

Sales Budget

o

Cost of Goods Sold Budget

o

Production Budget

o

Direct Materials Purchases Budget

o

Direct Labor Cost Budget

o

Factory Overhead Budget

o

Selling and Administrative Expense Budget

Financial Budgets o

Cash Budget

o

Capital Expenditure Budget

Operating Budgets: o

Sales Budget is the first step in the budgeting process. It requires careful analysis of forecasted economic and market conditions, business capacity, proposed selling expenses, and predictions of unit sales. Formula is: Expected Sales Volume x Expected Selling Price per Unit = Budgeted Revenue

o

Production Budget estimated the number of units to be manufactured to meet budgeted sales and desired inventory levels. Formula is:

Units to be produced is determined by: Expected unit sales + Desired ending inventory units Required units of available production -

o

Desired beginning inventory units Units to be produced

Direct Materials Purchases Budget estimated the quantities of direct materials to be purchases to support budgeted production and desired inventory levels and can be developed using the following formula: Units to be produced (production budget) + Desired ending materials inventory Total inventory units required -

Desired beginning inventory units Direct Material Quantity to be purchased

o

Direct Labor Cost Budget estimates the direct labor hours and related cost needed to support budgeted production. The direct labor cost budget is determined as follows: Budgeted Production Volume x Direct Labor Hours Expected per Unit = Budgeted Direct Labor

Hours Required for Production o

Factory Overhead Budget - estimated the cost for each item of factory overhead needed to support budgeted production.

o

Cost of Goods Sold Budget is prepared by integrating the direct materials purchases budget, direct labor cost budget, factory overhead cost budget. It's prepared as follows: Beginning Finished Goods + Beginning Work in Process + Cost of Direct Material Used in Production + Direct Labor + Factory Overhead Cost of Goods Goods Available For Sale - Ending Finished Goods -

Ending Work in Process

Cost of Goods Sold Selling and Administrative Budget

Financial Budgets Budgeted Income Statement is a integration of the Sales, Cost of Goods Sold and Selling and Administrative budget. Cash Budget - estimates the expected cash receipts (inflow) and payments (outflows) of cash for a period of time. The cash budget is integrated with the various operating budgets. The cash budget is structured for a budget period as follows: Estimated cash receipts - Estimate cash payments Cash Increase (decrease) + Cash balance at the beginning of the month - Minimum cash balance Excess (deficiency) Capital Expenditure Budget summarizes plans for acquiring fixed assets....