Units to be produced = Expected unit sales + Units in ending inventory – Units in beginning inventory LO 2 FORMULAS: Production Units Except for JIT systems, production budgets must meet sales needs & satisfy ending inventory requirements. LO 2 OPERATING BUDGETS: Steps in the Process Sales budget Production budget Direct materials purchases budget Direct labor budget Overhead budget Selling & administrative budget Ending finished goods inventory budget Cost of goods sold budget LO 2 MASTER BUDGETS: Major Components Operating budget Describes income generating activities of a firm Financial budgets Detail inflows & outflows of cashġ0 OPERATING BUDGETS: Steps in the Process LO 2 What is a “continuous” budget? A continuous budget is a moving 12-month budget, adding a month as each month expires. LO 2 MASTER BUDGET: Definition Comprehensive financial plan for organization as a whole. LO 1 ADVANTAGES OF BUDGETING A budgetary system provides the following advantages: Forces managers to plan Provides information that can be used to improve decision making Provides a standard for performance evaluation Improves communication & coordination LO 1 Where do budgets fit into planning & control? Budgets are financial plans for the future, identifying objectives & the actions needed to achieve them. Explain how activity-based budgeting works.ģ LO 1 PLANNING: Definition Looking ahead to see what actions should be taken to realize particular goals.Ĥ LO 1 CONTROL: Definition Looking backward, determining what actually happened & comparing it with previously planned outcomes.ĥ Where do budgets fit into planning & control? Describe flexible budgeting, & list the features that a budgetary system should have to encourage managers to engage in goal-congruent behavior. Define & prepare a master budget, identify its major components, & outline the interrelationships of its various components. 2 LEARNING OBJECTIVES Discuss budgeting & its role in planning, control, & decision making.
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