Term
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Definition
A formal written statement of management’s plans for a specified future time period, expressed in financial terms.
Used as a planning and communication tool for management. |
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Term
Sound organizational structure – authority and
responsibility are clearly defined. - Acceptance by all levels of management - Should portray realistic goals through research and
analysis. |
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Definition
| Effective Budgeting Essentials |
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Term
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Definition
| potential disadvantage through the underestimation of revenues or the overestimation of expenses (“slush”). |
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Term
| Long-range planning (Strategic Planning) |
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Definition
period of time involved
6.
7.
8.
Long range planning usually is for five years or more. - Emphasis in on long-term goals, select strategies to
achieve goals and develops policies and plans to
implement strategies - Amount of detail is less. |
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Term
| Short-term Planning or Tactical Planning |
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Definition
| - Usually not for more than a year - Set on achieving short-term goals, and operations - Considerable amount of detail. |
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Term
set of interrelated budgets that constitute a plan of action for a specified time period
- Operating budgets – the individual budgets that result in the preparation of the budgeted income statement
o Sales – Prepare cash receipts from this budget o Production o Direct Materials – Prepare cash disbursements from this
budget o Direct Labor o Manufacturing Overhead o Selling and Administrative Expense o Budgeted Income Statement
- Financial Budgets – focus primarily on the cash resources needed to fund expected operations and planned capital expenditures
o Capital Expenditures – Chapter 12 o Cash – works like a “checkbook” o Budgeted Balance Sheet |
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Definition
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Term
o Cash receipts – includes expected receipts from sales and selling of assets or stocks
o Cash disbursements – payments for direct materials, direct labor, manufacturing overhead, selling and administrative expenses, Dividends, and the purchase of assets. Remember to exclude depreciation
o Financing – shows expected borrowing and the repayment of the borrowed funds plus interest. |
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Definition
| C ash Budget – shows the anticipated cash flows. Contains three sections |
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Term
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Definition
| the use of budgeting in controlling operations |
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Term
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Definition
| a projection of budget data at one level of activity. beg level of budgeting |
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Term
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Definition
| a series of static budgets that project data for various levels of activity. The process enhances the relevance of the data. |
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Term
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Definition
| top management’s review of a budget report is focused either entirely or primarily on differences between actual results and planned objectives |
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Term
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Definition
| usually expresses as a percentage difference from budget. Those differences falling outside particular parameters will be investigated. |
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Term
| Responsibility Accounting |
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Definition
involves accumulating and reporting costs and revenues on the basis of the manager who has the authority to make the day-to-day decisions about the items. Used as a performance evaluation tool.
o Usually works best in a decentralized business environment. |
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Term
| 8. Responsibility Reporting System |
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Definition
| involves the preparation of a report for each level of responsibility in the company’s organization chart. |
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Term
cost center
profit center
investment center |
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Definition
| Types of Responsibility Centers. |
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Term
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Definition
incurs costs (and expenses) but
does not directly generate revenues. Usually
some type of production or service department |
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Term
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Definition
incurs costs and also generates
revenues. Managers are judged on the
profitability of their centers. |
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Term
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Definition
incurs costs and
generates revenues. Also has control over the investment center funds available for use. |
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Term
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Definition
| Are costs that specifically relate to one center and are incurred for the sole benefit of the center. They are traceable and are controllable by the center manager. |
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Term
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Definition
| pertain to a company’s overall operating activities and are incurred for the benefit of more than on segment or center. Also called common or allocated fixed costs. Most are not controllable by the center manager. |
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Term
a. Controllable fixed costs are deducted from
contribution margin b. Excess contribution margin over controllable fixed
costs is identifies as controllable margin. c. Non-controllable fixed costs are not reported. |
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Definition
| Responsibility Report content |
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Term
| Return on Investment (ROI) |
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Definition
shows the
effectiveness of the manager utilizing the assets at
his disposal. |
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Term
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Definition
| the income that remains after subtracting from the controllable margin the minimum rate of return on a company’s average operating assets. |
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Term
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Definition
| ignores the fact that one division might use substantially fewer assets to attain the same level of residual income as another division. |
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Term
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Definition
| essentially the same – predetermined unit costs that are used as measures of performance. |
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Term
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Definition
represents optimum levels of performance
under perfect operating conditions |
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Term
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Definition
efficient levels of performance that are
attainable under expected operating conditions. s.b.
rigorous but attainable. |
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Term
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Definition
| cost/unit of DM that should be incurred. |
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Term
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Definition
amount of DM that should be used
per unit |
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Term
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Definition
| DM price std. x DM quantity std. |
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Term
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Definition
| price/hour that should be paid |
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Term
| DL quantity (efficiency) std. |
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Definition
time that should be used
to make 1 good unit. |
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Term
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Definition
| DL price std. x DL quantity std. |
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Term
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Definition
| Budgeted OH divided by expected activity. |
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Term
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Definition
variances can be reported on a separate variance report.
Ø They can be disclosed separately in the cost of goods sold section of the income statement prepared for management.
Ø They would not be shown separately for external reporting purposes. |
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Term
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Definition
Incorporates financial and non- financial measures in an integrated system that links performance measurement and a company’s strategic goals. There are four commonly employed perspectives.
Ø Financial – employs financial measures like Net Income, Return on Assets, Credit Rating, etc.
Ø Customer – evaluates performance from the customer’s viewpoint and compares to competitors. Measures used are customer retention, brand recognition, customer recommendation, etc.
Ø Internal Process – evaluates the internal operating process and assesses value chain for effectiveness and efficiency. Areas looked at are % of defect free products, Stock outs, waste reduction, etc.
Ø Learning and Growth – development of the company and employee retention. Examples are Employee attrition, Cross-trained employees, Training hour, Ethnic violations, etc. |
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