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Advanced Cost Accounting
Chapter 6
23
Accounting
Undergraduate 4
05/09/2008

Additional Accounting Flashcards

 


 

Cards

Term

 

 

 

 

Chapter 6

Definition

 

 

 

 

Master Budget and Responsibility Accounting

Term

 

 

 

Budgets and the Budgeting Cycle 

Definition

 

 

A budget is (a) the quantitative expression of a proposed plan of action by management for a specified period of time 

and

(b) an aid to coordination what needs to be done to implement that plan.

Term

 

 

 

Strategic Plans and Operating Plans

 

Questions to ask? 

Definition

1. What are our objectives?

 

2. Are the markets for our products local, regional, national, or global?

 

3. What trends affect our markets?

 

4. How are we affected by the economy, our industry, and our competitors?

 

5. What organizational and financial strucures serve us best?

 

6. What are the risks and opportunities of alternative strategies, and what are our contingency plans if our preferred plan fails? 

Term

 

 

 

 

Budgeting Cycle and Master Budget

Definition
1. Managers and Mgt Accountants: Plan
Performance of Company & Subunits
Taking into account
Past performance and anticipated future changes
 
2. Senior managers set a "frame of reference" for subordinate managers (a set of financial and non-financial measures)
 
3. Check for variations from plans
 
4. Look for feedback and changes in conditions for next year/period 
Term

 

 

 

Master Budget 

Definition

 

 

The master budget expresses management's operating and financial plans for a specified period and it includes a set of budgeted financial statements.

 

Evolves from both operating and financing decisions 

Term

 

 

 

 

Operating decisions 

Definition

 

 

 

 

How do we best use our limited resources? 

Term

 

 

 

 

Financing decisions 

Definition

 

 

 

 

How do we obtain the funds to acuire our resources? 

Term

 

 

 

 

Advantages of Budgets 

Definition

Budgets:

 

1. Promote coordination and communication among subunits within the company

 

2. Provide a framework for judging performance

 

3. Motivate managers and other employees 

 

 

 

Term

 

 

 

Coordination and Communication 

Definition

 

Coordination is meshing and balancing all aspects of production or service and all departments in a company in the best way for the company to meet its goals.

 

Communication is making sure those goals are understood and accepted by all employees.

 

 

 

Term

 

 

 

Time Coverage of Budgets
Definition

 

 

 

 

A rolling or continuous budget is a budget that is always available for a specified future period.

Term

 

 

 

 

Steps in Developing an Operating Budget 

Definition

1. Revenues Budget

2. Production Budget (In Units)

3. DM Usage Budget & DM Purchases Budget

4. Direct Manufacturing Labor Cost Budget

5. MOH Cost Budget

6. Ending Inventories Budget

7. COGS Budget

8. Nonmanufacturing Cost Budget

9. Budgeted Income Statement 

Term

 

 

 

1. Revenues Budget

Definition

1. Revenues Budget

 

(Selling Price)*(Units Sold) = Total Revenues

Term

 

 

 

2. Production Budget (In Units)

Definition

2. Production Budget (In Units)

 

Budget Sales (Units) 

+

Target Ending finished goods inventory (Units)

-

Beginning Finished Goods Inventory (Units)

=

Budgeted Production (Units) 

Term

 

 

 

3. DM Usage Budget & DM Purchases Budget

Definition

3. DM Usage Budget & DM Purchases Budget

 

Used + Target End Inventor - Beg. Inventory = Purchases

 

Multiply Purchases By Price

 

[Remember: DM is NOT production, it is production times materials needed per unit]  

Term

 

 

 

4. Direct Manufacturing Labor Cost Budget

Definition

 

 

[Production (In Units)]*DL Hours Needed Per Unit =

Total Hours Needed

 

(Total Hours Needed)*(Wage Rate) = DML Cost

Term

 

 

 

 

5. MOH Cost Budget

Definition

 

 

(Total Budgeted MOH Cost/Budgeted Direct Manufacturing Labo-hours) = Budgeted MOH Rate

Term

 

 

6. Ending Inventories Budget

Definition

 Calculate Price Per Unit of Finished Goods:

 

DM Cost per unit of Input*Input per unit of output

=

Total Unit DM Cost

 

DL Cost per unit of Input*Input per unit of output

=

Total Unit DL Cost

 

MOH Cost per unit of Input*Input per unit of output

=

Total MOH Cost

 

Total DM + Total DL + Total MOH = Total Unit Cost

Term

 

 

 

 

6. Ending Inventories Budget (Part 2)

Definition

Compute DM Part:

 

DM Cost Per Unit*Target Units = Total DM Inventory

 

Compute Finished Goods Part:

 

Cost Per Unit*Target Units = Total FG Inventory

 

 DM Inventory +FG Inventory = Total End Inventory

 

Term

 

 

 

7. Cost of Goods Sold Budget

Definition
1.Beginning FG Inventory
2. Plus: DM Used
3. Plus: DL
4. Plus: MOH (Budgeted)
(Note: 2+3+4= Cost of Goods Manufactured)
(1+2+3+4= Cost of Goods Available for Sale)
5. Less: Ending FG Inventory
 
1+2+3+4 - 5 = Cost of Goods Sold!
 
Term

 

 

 

8. Prepare the Nonmanufacturing Cost Budget

Definition

 

 

 

If variable cost are used then it will be at a rate based on budgeted revenues

Term

 

 

 

 

9. Budgeted Income Statement

Definition

Revenues

 

Less: Cost of Goods Sold

 

= Gross Margin

 

Less: Operating Cost (Step 8)

 

= Operating Income 

Term

 

 

 

 

Kaizen Budgeting 

Definition

 

 

Budgeting for continuous improvement in labor-hours per unit 

Term

 

 

 

 

Budgetary Slack 

Definition

 

 

The practice of underestimating budgeted revenues and/or overestimating budgeted cost to make targets more easily achievable. 

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