introduction chapters
chapter 21
Budgeting:
Planning for Success
goals discussion
goals
achievement
fill
in the blanks
multiple
choice
problems
check list and key terms
Following is a "checklist" of selected key concepts that are likely to be included on an exam. Review and check-off each noted item to be certain that important concepts have not been overlooked in your study.
Define the term "budget."
Cite the benefits of the budgeting process.
Who ordinarily serves on a budget committee and what roles does this group play.
Distinguish between the mandated top-down and participative bottom-up budget construction processes.
Discuss the nature of budgetary slack.
How does the form of organizational structure influence business budgeting, planning, and information flow?.
Distinguish between incremental and zero-based budgeting approaches.
Generally describe potential human behavior and ethical aspects of budgeting.
Cite the components typically included in a master budget.
What should be the starting point for budget preparation?
What is the advantage of an electronic spreadsheet in the budgeting process?
Understand and be able to prepare a sales budget, production budget, direct materials purchases budget, direct labor budget, factory overhead budget, selling and administrative expense budget, cash budget, and budgeted income statement and balance sheet.
Define the term "pro forma."
Understand why it is important to control external distribution of budgetary information.
Distinguish between monthly, quarterly, and annual budgets.
What is a continuous budget?
What is a flexible budget and what are the advantages of such budgets?
What is an encumbrance and what control purpose does it serve?
KEY TERMS AND DEFINITIONS (with links to discussion in text)
| bottom-up participative budget | An budget approach driven by the direct participation of lower-level employees |
| budget committee | A group of senior managers from each business unit charged with leading the budget preparation and review process |
| budget slack | The influence of behavior to "pad" a budget via misstating expected revenues and/or expenses; to create more favorable budget vs. actual performance appraisals |
| cash budget | An essential budget component detailing planned cash receipts, disbursements, and financing actions |
| continuous budget | A budget that is constantly updated; as one month/quarter is completed another is added to the set the projections |
| direct labor budget | A budget that details expected direct labor needs, along with the related costs of labor |
| direct material purchases budget | A budget that details expected direct material purchases, along with the related cash payments |
| encumbrance | A budgetary restriction occurring in advance of a related expenditure |
| factory overhead budget | A budget that details the anticipated factory overhead, including calculations related to the allocation of such amounts |
| flexible budget | A budget that covers a range of potential outcomes by relating expense levels to the potential revenues |
| incremental budgeting | A budgeting approach where the prior year experience sets a base line for a new budget; changes are made based on new information but the base need not be rejustified in detail |
| master budget | Also known as the comprehensive budget; an integrated set of articulated budgets relating to numerous operational subcomponents (labor, material, overhead, SG&A, etc.) |
| pro forma financial statements | "As if" budgeted financial statements |
| production budget | A budget that details planned levels of production; takes into account sales and inventory build/decline |
| sales budget | A budget that details anticipated sales levels |
| SG&A budget | A budget that details anticipated selling, general, and administrative costs |
| static budget | A budget that does not anticipate alternative outcomes; estimated sales and expenses are fixed and establish the relevant benchmarks |
| top-down mandated budget | A budget approach where upper level management establishes parameters under which the budget is to be prepared |
| zero-based budgeting | A budget approach where each expenditure item must be justified for each new budget period |