estimate of what an organization expects to earn and spend during a specified period of time
-planning business operations
-communicating organizational goals
those budgetary actions that must be carried out in accordance with the budget plan
top-down approach to setting budget. quicker to put together, but might not have employees support
employees have input in setting budget, takes longer since more people are involved, but give employees sense of ownership of budget
needed to minimize slacks and abuses in budget amounts
method in which a budget is created and approved
which department starts the budget process and what do they start with
the financial department starts with prior year financial figures
the operational results expected by the organization and how to achieve those goels
when income is underestimated and/or costs are overestimated in a budget
problems with budgetary slack
-does not provide incentive for employees to increase performance; once they meet low goals, they tend to reduce performance
-sales are not maximized and cost not minimized, which ensures that budgetary slack will be incorporated into future budgets
-encourages waste; overspend so budget amounts will not be reduced in future periods
budgeting method where budget figures are not based on prior performance, but based on goals. Past performance is not taken into consideration
the budgeted unit costs that are used to produce an optimal level of productivity and efficiency. the purpose is to indicate when actual costs are different than budgeted or standard costs.
ideal budget standards
set the basis for what costs should be when production is operation under optimal conditions. Assume skilled workers, not waste, spoilage or downtime.
attainable standards; assume normal waste, spoilage and downtime. Achievable, but not necessarily easily achievable.
variable costs that can be influenced by an organization
-some fixed costs (those related to a specific product or dept)
unattainable budget standards
budget goals set that cannot be realistically attained; may lead to frustrated workers, inaccurate financial rptg
used to make operating decisions for an organization. Forecast of sales, income, COGS and expenses. Uses budgets:
capital expenditure budget
used to plan for capital expenditure projects. shows when assets need to be replaced, cost of assets and construction costs; used to determine whether a project should be pursued.
statistical method that measures the relationship between a dependent variable and one or more other variables. Used to measure how much a changing variable, such as interest rate, affect the price of another varialbe, such as a financial investment.
simple (or linear) regression
measures the expected value of a variable based on the values of another variable.
measures the changes in one variable that are associated with changes in two or more other variables
graphical depiction that shows the efficiencies gained from experience. Shows the relationship between the number of units produced and the time spent per unit. As an idividual learns a task, they move down the _________.
forecasting technique that uses a weighted moving average of historical data as the forecasting basis. give the most weight to recent data and less weight to older data.
time series analysis
use of historical data and mathematical techniques to predict the future.
annual (or master) budget
outlines the plans of the organization for its fiscal year. Purpose is to control the day to day operation of the organization.
creation of idividual budgets timeline
-forecasted balance sheet
shows forecasted sales volume and the sales price of each product produced; estimates materials needed to meet sales figures
estimate of the materials and labor needed to meet the sales goals.
determine whether organization will generate enough cash during the period to meet its finanacial nees and whether or not financing will be needed.
forecasted balance sheet
ensures that assets equal liabilites.
method an organization uses to allocate money and resources to an individual project, details money and other resourses, land, equip
Allocates funds to processes and/or projects, rather than depts. or functions -- Activities that incur costs across functional areas.
as the current month draws to a close, an additional month is added at the end of the budget period, resulting in a continuous 12-month budget
budgetary approach that explicitly incorporates CONTINUOUS IMPROVEMENT anticipated during the budget period into the budget numbers
allows for modification to be made to the budget depending on the actual performance. For ex, if a budget is set for a production of 100 units, but the actual production is 200 units, the budget will be adjusted to show budgeted (but not actaul) revenues and costs for the 200 units
static vs. flexible budgets
______ forecasts one level of production results and ______ projects budget for several production levels. When budgeted production levels are not met, a flexible budget is more useful because actual and budgeted costs can be compared for various production levels
annual profit plan
forecast of the revenues and expenses and computes the net income/loss
prediction of sales volume for a future period; basis for planning production capacity, production levels, inventory quantities, labor requirements and purchasing amounts
a detailed plan showing the number of units that must be produced during a period in order to satisfy both sales and inventory needs
direct material budget
A detailed plan showing the amount of raw materials that must be purchased to fulfill the production budget and to provide for adequate inventories.
direct labor budget
estimate of the workforce needed to meet production output
calc = units to be produced X hours of DL needed per unit X DL wager per hour
A budget that reveals the planned expenditures for all indirect manufacturing items.
calc=fixed OH + variable OH
costs that cannot be linked to a particular job or department
the marginal profit per unit sale.; the amount remaining from sales revenues after all variable expenses have been deducted
selling and adminstrative budget
estimate of those costs that will be incurred on behalf of the sales and operations departments
budget for acquistion of capital assets
planning method for the purchase and replacement of LT assets; includes financing methods for these assets