MA last chap (self constructed )

• critically important to both planning and control

  budgeting
• are quantitative plans for the future, stated in either physical or financial terms or both.

  budgets
• When used for ___, a ___ is a method for translating the goals and strategies of an organization into operational terms

  planning, budget
• is the process of setting standards, receiving feedback on actual performance, and taking corrective action whenever actual performance deviates significantly from planned performance

  control
• can be used to compare actual outcomes with planned outcomes, and they can steer operations back on course, if necessary.

  budgets
• evolve from the long run objectives of the firm; they form the basis for operations

  budgets
• are usually prepared for areas within an organization (departments, plants, divisions, and so on) and for activities (sales, production, research, and so on).

  budgets
• serves as the comprehensive financial plan for the organization as a whole and gives an organization several advantage

  system of budgets
• budget forces manager to?

  plan
• points out potential shortfalls.

  cash budget
• set standards for the use of a company's resources and help control and motivate employees

  budgets
• a set of specific plans to achieve those objectives

  budgets
• The role of ___ becomes more important as an organization grows larger

  communication and coordination
• can range from the fairly informal process undergone by a small firm, to an elaborately detailed, several-month procedure employed by large firms.

  budgeting process
• works under the direction of the budget committee and is usually the controller or someone who reports to the controller.

  budget director
• ensures that the budget is linked to the strategic plan of the organization.

  budget committee
• appoints the members of the committee, who are usually the president, the vice presidents, and the controller

  president of the organization
• Types of Budgets

  master budget

  operating budgets

  financial budget

  continuous budget

  continuously updated budget
• is a comprehensive financial plan for the year made up of various individual departmental and activity budgets.

  master budget
• are concerned with the income-generating activities of a firm: sales, production, and finished goods inventories.

  Operating budgets
• The ultimate outcome of the operating budgets is a ?

  pro forma or budgeted income statement
• “pro forma” is synonymous with __ and __

  budgeted” and “estimated.”
• are concerned with the inflows and outflows of cash and with financial position

  Financial budgets
• is usually prepared for a one-year period corresponding to the company's fiscal year.

  master budget
• Most organizations prepare the budget for the coming year during the last how many months of the current year?.

  12
• is a moving 12-month budget

  continuous (or rolling) budget
• the objective of this budget is not to have 12 months of budgeted information at all times, but instead to update the master budget each month as new information becomes available

  continuously updated budget
• alerts all segments of the company to begin gathering budget information

  budget director
• is the basis for the sales budget, which, in turn, is the basis for all of the other operating budgets and most of the financial budgets.

  sales forecast
• Creating the sales forecast is usually the responsibility of the

  Marketing Department
• The first section of the master budget is the

  operating budget
• is the projection approved by the budget committee that describes expected sales for each product in units and dollars

  sales budget
• must be constructed first, before other budgets can be constructed.

  sales budget
• describes how many units must be produced in order to meet sales needs and satisfy ending inventory requirements.

  production budget
• The production budget depends on the ___ shown in the sales budget

  unit sales
• A___ is constructed for each product manufactured (or service provided). Both unit sales and unit finished goods inventories desired are required for the production budget.

  separate production budget
• basic equation for the production budget is:

  Units to be produced = Unit sales + Desired units in ending inventory - Units in beginning inventory
• if there were no inventories, the number of units to be produced would equal the

  number of units to be sold
• is similar in format to the production budget; it is based on the number of materials needed for production and the inventories of direct materials.

  direct materials purchases budget
• Expected direct materials usage is determined by the ___(the technical relationship existing between direct materials and output).

  input-output relationship