Questions and Answers
A(n) is a formal statement of a company's plans in dollars.
budget
To __________ is to use the control function to evaluate business operations against some norm.
benchmark or evaluate
Budgeting guidelines that help ensure budgeting is a positive motivating force include: (Check all that apply.)
The primary purpose of using short-term budgets is to:
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List the individual budgets of the master budget in the order in which they are prepared.
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Characteristics of budgets include: (Check all that apply.)
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Budgets should be prepared using a top-down approach to be a positive motivating force.
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Budgeted performance considers all of the following in relation to a benchmark: (Select all that apply)
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The first step in preparing the master budget is planning the budget for:
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Most companies prepare a(n) ______ budget that is separated into ______ budgets.
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A manufacturing company would typically prepare all of the following budgets except:
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Units to be produced in January will be:
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The total cost of direct materials purchases for May will be:
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To __________ is to use the control function to evaluate business operations against some norm.
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The formula to compute the budgeted direct labor cost is:
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A company expects to sell 400 units of Product X in January, and expects sales to increase by 10% per month. If Product X sells for $10 each, the total sales for the first quarter of the year will be:
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The total budgeted overhead cost for the company will be:
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Direct materials are $15 per unit; direct labor is $7 per unit and variable overhead costs are $2 per unit. If total product costs are $27, what are fixed costs per unit?
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Units to be produced in the second quarter will be:
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The total selling expenses for the quarter will be:
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The formula to determine the materials to be purchased is:
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The total cost of direct labor for the month will be:
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The total general and administrative expenses on the January general and administrative expense budget will be:
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The total budgeted overhead cost will be:
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Total product cost per unit is:
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The reporting of expected cash receipts and cash payments related to the sale and purchase of plant assets is reported on the __________ budget.
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The total selling expenses on the January selling expense budget will be:
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The company expects 30% of the sales to be cash sales. The total cash collected during March will be:
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Depreciation on non-manufacturing assets and property taxes are considered general and administrative expenses and therefore are included on the general and administrative expense budget.
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Study Notes
Budgeting Fundamentals
- A budget is a formal statement of a company's plans in monetary terms.
- Budgeting is used to benchmark or evaluate business operations against established norms.
Effective Budgeting Practices
- Guidelines for creating motivating budgets include participatory budgeting, attainable goals, and providing opportunities to explain actual versus budgeted variances.
- Budgets typically span a month, quarter, or year and should be expressed in dollars.
Master Budget Components
- The master budget consists of several individual budgets, arranged in order: Sales budget, Production budget, Various expense budgets, Capital expenditures budget, and Cash budget.
Short-term Budgets
- Short-term budgets primarily aim to evaluate performance and make necessary corrections.
Sales Budget Insights
- A sales budget is critical for projecting future sales, influencing production and inventory management.
Production and Material Budgets
- Production calculations consider beginning and desired ending inventories to determine units to produce.
- The cost of direct materials is based on unit requirements and prices, with total purchases computed by adjusting for beginning and ending inventories.
Direct Labor and Overhead Calculations
- Budgeted labor costs and overhead costs can be computed using direct hours and rates.
Cash Flow Considerations
- Cash payments for direct materials consider payment schedules, like paying a percentage of current purchases and prior months' purchases.
Expense Budgets
- General and administrative expenses include salaries, depreciation, and advertising, calculated for budgetary purposes.
- The budgeted net income is derived from sales, COGS, expenses, and projected income tax rates.
Capital Expenditures Budget
- The capital expenditures budget tracks cash flows related to buying and selling plant assets, crucial for business investment decisions.
Financial Statements Interaction
- Various budget figures link directly to the projected budgeted balance sheet, including accounts receivable from the sales budget.
Budget Formulas
- Key formulas include:
- Budgeted direct labor cost = units produced × direct labor hours required × labor cost per hour.
- Units to purchase = budgeted sales units + desired inventory - beginning inventory.
- Total product costs consider all inputs: materials, labor, variable overhead, and fixed costs.
Common Errors and Misunderstandings
- Avoid a top-down approach in budgeting as it can demotivate staff; collaborative and bottom-up approaches are generally more effective.
Income Tax Considerations
- Calculate expected income tax expenses as a percentage of budgeted income to understand potential liabilities.
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Description
Test your knowledge of key terms and concepts in Accounting Chapter 20 with these flashcards. Learn about budgets, benchmarking, and effective budgeting guidelines. Challenge yourself to see how well you can recall and understand these important topics in accounting.
