M/A - Master and Cash Budget Flashcards
What is the difference between budget, budgeting, and budgetary control
Budgets - a quantitative expression of an organization’s plan for a future period
Budgeting - the act of preparing a budget
Budgetary control - uses the budget to help control organizational activities
- Two main roles of management in budgeting - Planning: setting objectives and preparing budgets that will achieve the planned objective
Control: Involves regularly comparing budget to actual result achieving and taking action to address the significant difference
Explain that the strategic process plan
- Short-term plan (operational) - short term budget - lead to - Master operational budget product budgeting (one year or less)
- Long-term plans (strategic) - Long-term budget - lead to - Capital budgeting, Two to ten-year strategic budget
- Types of budgets for an organization includes:
- Master budget - comprehensive financial plan for various aspect
- OPerating budget, comprehensive financial plan for various aspect of operation
What are 4 decision framework for budgeting process
- Identifying constraint, potential issues, and areas of uncertainty
- Gather information
- Make a future prediction
- Implement the budget and gather feedback
- Predict financial consequence of plans, compare resource requirement with available resources, allocate constraint resources to most profitable uses
Explain what a rolling budget is and the difference between bottom up and top-down approach to budgeting
Rolling budget - a budget that is updated regularly every month or every quarter and typically extends for 12 to 16 months.
- Operating plans and related budgets are not updated for current condition
Bottom-up approach - managers prepare their budget estimates, which are then reviewed by senior management
Top-down approach - senior management imposes a budget on the managers and departments under the controls.
Gather information from subordinates
How is the master budget determine outlined
- Sales Forecast
- Revenue Budget
- Production Budget
- DM Budget, DL Budget, MOH Budget
- Cost of goods manufactured budget & COGS budget
- Revenue Budget also leads to Selling and administrative budget
- Budgete income statement
- Operating cash budget
8.1 . OPerating cash budget leads to
9. Investment budget, Cash budget, Financial budget
- Budgeted financial statement
- Initial budget generates a production plan that requires the acquisition of capital equipment or skills labour
What are the components of a financial and operating budget
Financial budget - Budgeted I/S, Budgeted B/S, Cash budget, Capital investment budget
Operating budget - Sales budget, Production budget, Desire ending inventory budget, DM usage and purchase budget, DL budget, MOH budget, COGS budget, SG&A Budget
- Projected F/S reflects the expected financial consequence of various operating budget
Explain what a sales budget is and use the four steps of the decision framework
Sales budget: Starting point of any budget activity
- Based on management expectations and organization reaction to the external environment in which it operates
Step 1: Identify constraint - May be machine or DL hours, only so many item can be product
Step 2: Gather information - Sales forecast - estimates of the volume of sales in units
Step 3: Make a prediction
Budget sales (units) xx
* Selling price/ unit. $x
= Budget sales ($). xx
Step 4: Implement the budget and gather feedback
- Management implements the sales budget for the period. Gather to determine if the assumption were accurate and if actual results resemble the budgeted figures
Explain what the production budget is for
Production budget - drives all the product cost budget, as variable cost is dependent on the # of units that were intended to be sold
- Plans the # of units to be manufactured
Format:
Budgeted sales (units). xx
Add: desired ending inventory xx
Total needed. xx
Less: beginning inventory. xx
Production required xx
How is the direct material budget calculated
- Direct material budget
Three inputs: 1. Amount of raw material needed per unit of output 2. Budgeted units of production 3. Cost per unit of raw material
Amount of raw material/ units of product
* Production required (in unit)
= Raw material needed for production
+ Desired ending inventory of raw material
= Total raw materials needed
- Beginning inventory of raw material
= Raw material purchases require
* Cost per unit of raw material
= Raw material purchases required
Direct material usage budget - Prepared to determine the cost of material used in each period
How is the direct labor budget calculated
- Similar to direct material budget, starting point are the labour hours required per unit
Format:
Production required inunit (fromproductionbud)
* Direct labour hour per unit of production
= Total direct labour hours required
* Direct labour cost per hour
= Budgeted direct labour
What are the two types of overhead that is calculated
- It covers all manufacturing related cost other than DM and DL
- Variable overhead
Unit produced (or cost driver) xx
* Variable overhead (VOH)/ unit $VOH/unit
= Total VOH xx - Fixed overhead
- Supervision
- Indirect labour
- Indirect material
- Depreciation
- Other fixed overhead
- Total fixed overhead
Total overhead = Fixed + Variable overhead
Explain the cost of goods manufactured budget and Cost of goods sold budget
COGM budget - sum of budgeted cost from the direct material, labour, manufacturing overhead
Total COGM + cost of beginning inventory - desired cost of ending inventory = COGS budgeted
Format COGM & COGS budget
DM xx
DL xx
MOH. xx
COGM xx
Cost of goods available for use xx
less: ending inventory (xx)
COGS xx
How is the selling and administration budget determined
- Includes all non-manufacturing expenses, including marketing, R&D and general administration
- Some variable commission is based on the volume of sales
Format (Variable and fixed)
Budgeted sales (in units) xx
Variable selling / administrative cost xx
Total variable selling and administrative $xx
Fixed selling and administrative cost
R&D $xx
Depreciation xx
Advertising. xx
Custoemr service xx
Administrative xx
Total fixed selling and administrative xx
What budget is the lifeblood of the organization
- Cash budget
- Key aspect is to anticipate the cash receipt and disbursement that are likely form planned activities
-Cash budget forecast for all sources of cash receipts and disbursement for an organization, department, project or other activity - Is for typically: Sales of goods/services, Product cost, Selling and administrative cost, capital asset purchase or sold, Investment (including use of idle cash), Debt and equity financing
What is the difference between cash collection and disbursement
Cash collection - schedule will differ from the sales budget if the organization offers credit to its customer
Cash disbursement - requires for organization to track when payment will be made
- Organization to track when payment will be made collection from the customer as well as any other planned cash receipt
