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MCS Ch. 9
n/a
26
Accounting
Graduate
05/04/2011

Additional Accounting Flashcards

 


 

Cards

Term
Characteristics of a budget (7)
Definition
1. A budget estimates the profit potential of the b/u
2. It is stated in monetary terms, although the monetary amounts may be back up by nonmonetary amounts
3. It generally covers a period of one year. If business is very seasonal, there may be 2 per year.
4. It is a management commitment; managers agree to accept responsibility for attaining the budgeted objectives.
5. The budget proposal is reviewed and approved by an authority higher than the budgetee
6. Once approved, the budget can be changed only under specified conditions
7. Periodically, actual financial performance is compared to budget, and variances are analyzed an explained.
Term
Strategic planning vs. budgeting (3)
Definition
1. Budgeting focuses on 1 year, strategic planning is focuses on several
2. Strategic planning precedes budgeting and provides framework within which the annual budget is developed.
3. A strategic plan is structured by product lines/programs and a budget is structured by responsibility centers.
Term
Forecasting vs. budgeting
Definition
1. Budget is a management plan (meaning management will try to make actual correspond with the budget).
2. A forecast is a prediction of what will most likely happen, no trying to shape it so what actually happens was what was predicted.
Term
Characteristics of a forecast (6)
Definition
1. May or may not be stated in monetary terms
2. Can be for any time period
3. Forecaster does not accept responsibility for meeting the forecasted results
4. Forecasts are usually not approved by higher authority
5. A forecast is updated as soon as new information indicates there is a change in conditions
6. Variances from forecast are not analyzed formally or periodically.
Term
Forecast is exclusively a planning tool while a budget is a planning and control tool
Definition
Term
4 principle purposes of a budget
Definition
1. Fine tuning the strategic plan
2. Coordination - resolve inconsistencies between business units
3. Assigning responsibility
4. Basis for performance evaluation
Term
Operating budget categories
Definition
1. Revenue budgets
2. Budgeted production and cost of sales
3. Marketing expenses
4. General and admin
5. R&D
6. Income taxes
Term
Other budgets (4)
Definition
1. Capital budget
2. Budgeted b/s
2. Budgeted c/f
4. MBO - open new sales office, new product lines, retrain employees. Problem is that they are separated from the budget preparation process.
Term
Budget committee
Definition
Consists of members of senior mgmt, CEO, COO, CFO.
Reviews and either approves or adjusted each of the budgets
Term
4 steps of budget preparation process
Definition
1. Issuance of guidelines
2. Initial budget proposal
3. Negotiation
4. Review and approval
Term
1. Issuance of guidelines
Definition
Assumed inflation in wages, corporate policies on promotion.
Budget staff develops, senior mgmt approves
Term
Initial budget proposal
Definition
Can be classified into 2 categories:
1. changes in external forces
2. Changes in internal policies and procedures
Term
1. Changes in external forces (5)
Definition
1. Changes in the general level of economic activity as it affects the volume of sales
2. Expected changes in the price of purchased materials and services
3. Expected changes in labor rates
4. Expected changes in the cost of discretionary activities
5. Changes in selling prices
Term
2. changes in internal policies and procedures (3)
Definition
1. Changes in production costs, reflecting new equipment and methods
2. Changes in discretionary costs, based on anticipated changes in workload
2. Changes in market share and product mix
Term
Negotiation
Definition
superior and budgetee discuss budget proposal. Slack: difference between budget and best estimate
Term
Review and approval
Definition
Final approval is recommended by the budget committee to the CEO. CEO submits approval of budget to BOD for ratification.
Term
2 types of budget revisions
Definition
1. Procedures that provide for a systematic (quarterly) updating of the budgets
2. Procedures that allow revisions under special circumstances

*Mgrs should not be required to adhere to plans that subsequent events make suboptimum
Term
Contingency budgets
Definition
What mangers should do if there is a significant decrease/increase in sales volume from what was planned.
Term
Participation in the budgetary process
Definition
1. Top down - rarely works
2. Bottom up
Term
Budget participation - 2 positives when budgetee has influence and is involved
Definition
1. Likely to be greater acceptance of budget goals if they are perceived as being under mgrs control as opposed to being externally imposed
2. Participative budgeting results in effective information exchanges
Term
Participative budgeting (2)
Definition
1. budgetee is involved in the budgeting process
2. budgetee must have influence over the numbers used
Term
Pseudo
Definition
Makes it seem as though the budgetee is involved, even though they are not
Term
Characteristics of someone preparing the budget (3)
Definition
1. Fair
2. impartial
3. Personable
Term
Reasons why senior mgmt approves achievable budgets (5)
Definition
1. If the budgeted target is too difficult, managers are motivated to take short-term actions that may not be in the long-term interests of the company.
2. Achievable budget targets reduce the motivation for managers to engage in data manipulation to meet the budget
3. If b/u profit budgets represent achievable targets, senior management can, in turn, divulge a profit target to security analysts, shareholders, and other external constituencies with a reasonable expectation of being correct.
4. A profit budget that is very difficult to attain usually implies an overly optimistic stales target. May lead to over-commitment of resources to gear up for higher sales activity.
5. When b/u managers are able to meet and exceed their targets, there is a “winning” atmosphere and positive attitude within the company.
Term
Senior mgmt involvement
Definition
1. Review and approval
2. Follow-up on budget results
Term
Quantitative techniques (2)
Definition
1. Simulation - model of real situation then manipulated to see the outcome of that situation
2. Probability estimates - Monte Carlo process - probability distribution by running a model many times. this one is used less frequently.
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