acct b

  1. def of budget
    a detailed quantitaive plan fr acquiring and using financial and other resources over a specified forthcoming time period
  2. Advantages of budgeting
    define goals and objectives, think about and plan for the future, means of allocating resources, unover potential bottlenecks, coordinate activities, communicate plans
  3. Order of budgets
    1) Sales Budget 2) Production budget 3) direct materials 4) direct labor 5) MOH 6) ending finised goods 7)selling and administrating expenses 8) cash budget 9) income statement 10)balance sheet
  4. Production budget
    • lists the number of units that must be produced to satisfy sales needs and to provide for the desired ending inventory
    • Budgeted Unit sales + desired ending inventory (% of following qtr) = Total Needs - beg inventory (same as end inv of previous qtr) = Required Production
  5. Direct Materials Budget
    • details the raw materials that must be purchased to fulfill the production budget and to provide for adequate inventories
    • Raw Materials needed to meet production schedule +desired ending inv of raw materials = Total Raw materials needed - beg inv of raw materials = Raw materials to be purchased
  6. Direct labor budget
    • shows the direct labor-hours required to satisfy the production budget. By knowing in advance how much labor time will be needed throughout the budget year, the company can develop plans to adjust the labor force as the situation requires
    • Units to be produced x DL time per unit (hr) = total DLH's needed x DL cost/hr = Tota DL cost
  7. MOH Budget
    • lists all costs of production other than direct materials and direct labor
    • Budgeted DLH's x Variable OH rate = total Variable OH + Fixed MOH = Total MOH - depreciation = cash needed (disbursement for MOH)
  8. The cash budge is composed of four major sections
    • The receipts section.
    • The disbursements section.
    • The cash excess or deficiency section
    • The financing section
  9. Cash budget
    • Beg cash balance + receipts (collections from customers) = total cash avail. - disbursements (DM, DL, MOH, selling admin. , equip purch. , dividends) = Total disbursements (+,-) excess (deficiency of cash avail over disbursements)
    • Financing: borrowing (at beg of qtr
    • Repayments (end of year)
    • Interest=
    • End Cah balance
  10. Responsibility Accounting
    Managers should be held responsible for those items and only those item that the manager can actually control to a significant extent
  11. Planning budget characteristics
    • prepared for a single planned level of activity
    • performance evaluation is difficult when actual activity differs from the planned level of activity
  12. Flexible Budget characteristics
    • may be prepared for any activity level in the revelant range
    • show costs that should have been incurred at teh actual level of activity
    • help managers control costs
    • improve performance evaluation
  13. Favorable Variance
    occurs when actual revenue is greater than budgeted revenue
  14. Unfavorable Variance
    occurs when actual costs are greater than budgeted costs
  15. Price Variance
    (AQ x AP) - ( AQ x SP)
  16. Quantity Variance
    (AQ x SP) - (SQ x SP)
  17. Material Price Variance
    AQ ( AP - SP)
  18. Materials Quantity Variance
    SP (AQ - SQ)
  19. Planning Budget, Flexible Budget, Actual Results
    Budgeted x quantity = revenue - expenses = NOI
  20. Activity Variance
    • goes between Planning and Flexible budged
    • Revenue + Spending Variance = between Flexible and Actual Budget
Card Set
acct b