Budgeting

Question 1

What is an ideal standard and its advantages/disadvantages?

Answer 1

• represent the costs that result from perfect efficiency and effectiveness in job performance
• ideal standards are generally not historical; they are forward-looking
• no provision is made for normal spoilage or downtime
• advantage: implied emphasis on continuous quality improvement (CQI) to meet the ideal
• disadvantage: demotivation of employees by the use of unattainable standards

Question 2

What are currently attainable standards and its advantages/disadvantages?

Answer 2

• represent costs that result from work performed by employees with appropriate training and experience but without extraordinary effort
• provisions are made for normal spoilage and downtime
• adv: fosters the percetion that standards are reasonable
• dis: required use of judgement and potential manipulation

Question 3

What are authoritative standards and its advantages/disadvantages?

Answer 3

• set exclusively by management
• adv: authoritative standards can be implemented quickly and will likely include all costs
• dis: workers might not accept imposed standards

Question 4

What are participative standards and its advantages/disadvantages?

Answer 4

• set by both managers and the individuals who are held accountable to those standards
• adv: workers are most likely to accept participative standards
• dis: participative standards are slower to implement

Question 5

What is included in an operating budget?

Answer 5

• sales budgets
• production budgets
• selling and admin budgets
• personnel budgets

Question 6

What is included in a financial budget?

Answer 6

• pro forma FS
• cash budgets

Question 7

What is the budgeted production formula?

Answer 7

budgeted sales
+ desired ending inventory
- beginning inventory
= budgeted production

Question 8

What is the units of DM to be purchased for the period formula?

Answer 8

units of DM needed for a production period
+ desired ending inventory at the end of the period
- beginning inventory at the start of the period

Question 9

What is the cost of DM to be purchased formula?

Answer 9

units of DM to be purchased for the period * cost per unit

Question 10

What is the DM usage formula?

Answer 10

beginning inventory at cost
+ purchases at cost
- ending inventory at cost

Question 11

What is the total wage formula?

Answer 11

budgeted production (in units) * hours required to produce each unit
= total number of hours needed * hourly wage rate
= total wages

Question 12

What is the factory overhead budget?

Answer 12

• includes the fixed and variable production costs that are not DL or DM
• applied to inventory based on a representative statistic

Question 13

Describe the cost of goods manufactured and sold budget

Answer 13

• accumulates the info from the DL, DM and factory OH budgets

Question 14

Describe the selling and admin expense budget

Answer 14

• represent the fixed and variable nonmanufacturing expenses anticipated during the budget period

Question 15

What are examples of variable selling expenses?

Answer 15

• sales commissions
• delivery expenses
• bad debt expenses

Question 16

What are examples of fixed selling expenses?

Answer 16

• sales salaries
• advertising
• depreciation

Question 17

What are general admin expenses (all fixed)?

Answer 17

• administrative salaries
• accounting and data processing
• depreciation
• other admin expenses

Question 18

What is a capital purchase budget?

Answer 18

• identify and allow management to evaluate the capital additions of the org, often over a multiyear period
• financing is a significant component
• capital budgets detail the planned expenditures for capital items
• highly dependent on the availability of cash or credit and involve LT commitments by the org