Chapter 22: Budgeting

Question 1

Budgeting affects managerial functions of…

Answer 1

Planning, Controlling, and Directing

Question 2

Continuous Budgeting

Answer 2

A variation of fiscal-year budgeting that maintains a 12 month projection into the future

Question 3

Zero-based Budgeting requires

Answer 3

Managers to estimate sales, production, and other operating data as though operations are being started for the first time

Question 4

A static budget shows what? And what is a disadvantage of static budgets?

Answer 4

The expected results of a responsibility center for only one activity level. A disadvantage is that they don’t adjust for changes in activity levels.

Question 5

This budget shows the expected results of a responsibility center for several activity levels.

Answer 5

Flexible Budget

Question 6

What steps are needed to construct a flexible budget?

Answer 6

Step 1. Identify the relevant activity levels.
Step 2. Identify the fixed and variable cost components of the costs being budgeted
Step 3. Prepare each activity level by multiplying variable cost/ unit by activity, then adding monthly fixed cost

Question 7

An integrated set of operating and financing budgets for a period of time

Answer 7

Master Budget

Question 8

Budgeted Revenue (sales budgeting) =

Answer 8

Expected Sales Volume * Expected unit sales price

Question 9

What does the Production Budget Estimate?

Answer 9

The number of units to be manufactured to meet budgeted sales and desired inventory levels

Question 10

Expected units to be sold + Desired units in ending inv. - Estimated units in beginning inv. = ?

Answer 10

How to determine the total units to be produced in a production budget

Question 11

How many steps are needed to develop a direct materials budget and what are they?

Answer 11

3 steps are needed ;

1. Determine budgeted DM required (budgeted production volume * DM quantity expected per unit)
2. The budgeted material required is adj. for beginning and ending inventories to determine DM to be purchased for each material (materials required+Desired ending inv.- estimated beginning inv.)
3. Budgeted DM to be purchased is found by (Step 2 * Unit price )

Question 12

What budget is developed by these steps;

1. Direct Labor Required = Budgeted Production Volume * Direct Labor hours expected per unit
2. Direct Labor Cost = Step 1 * Hourly Rate

Answer 12

Direct Labor Cost Budget

Question 13

Factory Overhead Cost Budget are

Answer 13

Estimates the cost for each factory overhead item that is a necessity for production

Question 14

The 3 budgets of Direct Materials Purchase, Direct Labor Cost, and Factory Overhead Cost all combine to create this Budget.

Answer 14

Cost of Goods Sold Budget

Question 15

The Budgeted Income Statement integrates what budgets into it?

Answer 15

Sales Budget, Cost of goods sold budget, and selling & administrative expenses budget

Question 16

In a cash budget, how do you find the total cash collected from sales on account amount ?

Answer 16

(Prior month’s Budgeted sales * % Cash collected from Prior month) + (Current month’s Budgeted sales * % Cash collected from Current month)

Question 17

How is the cash budget structured for a budget period?

Answer 17

Estimated cash receipts - estimated cash payments = Cash increase (decrease) + cash balance at beginning of month = Cash balance at end of month - minimum cash balance = Excess (deficiency)