Budgeting Flashcards
(18 cards)
What is a budget?
A statement for a period of time, which include planned revenues, expenses, assets and liabilities.
What is the strategic planning, Budgeting and Control process?
- Strategic planning process
(an organization should have prepared a long term plan or strategy) - Creation of a long term plan
(this requires a statement of targets or activities required, rather than just deciding the direction the business wants to go in) - Preparation of annual budget within context of the long term plan
- Monitor actual outcomes and respond to deviations from planned outcomes
What are some functions of budgets?
- Planning annual operations
- Coordinating activities
- Communicating plans
- Motivating managers
- Controlling activities
- Evaluating performance
What are the two types of participation in the preparation of budgets?
-Bottom up budgeting
prepared by managers, then checked
and approved by top management (budgeted too much)
-Top down budgeting
prepared by top management given to
managers (less realistic)
What is a functional budget?
Set the plan for sales and
production of products over a period of time
What are some examples of different types of budgets?
- Sales budget
- Production budget
- Material usage budget
- Material purchase budget
- Labor budget
- Overhead budget
What is production budget formula
sales volume - opening inv + closing inv
What is direct labor budget formula
production volume x labor rate per hour x number of hours per unit
What is variable overhead budget formula
production volume x number of hours per unit x variable overhead rate per unit
What is a master budget
combination of budgeted income statement, statement of financial position, cashflow statement
financial budget
Contains cash budgets and other budgeted financial statements
What does a companies capital expenditure budget show
presents the company’s plan for purchasing long-term assets.
What is the cash budget layout?
Cash receipts X
Cash payments (X)
Balance in Month CR-CP
Balance b/f bank balance at beginning of period
Balance c/f bank balance in month + balance b/f
When are variable overheads paid
in the month after they are incurred
Payments:
material purchases - IMMEDIATELY
labor - IMMEDIATELY
Variable overhead - ONE MONTH LATER
Fixed overhead - ONE MONTH LATER
What should u do if u see a cash budget shortage?
- working capital management
- arrange a loan
- arrange an overdraft
What are the different types of budgeting ?
INCREMENTAL BUDGETING
ZERO-BASED BUDGETING
ACTIVITY BASED BUDGETING
Explain the different types of budgeting
Incremental -
-take the previous results and make adjustments for incremental changes
Zero based -
-do not consider the previous period and start from scratch
Activity based -
-It looks at the activities a business does (like making products, handling customer orders, maintaining machines) and then budgets based on what those activities actually cost.
