HIST 1402 Lecture Notes - Lecture 7: Operating Budget, Multiple Choice, Cost Driver

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19 Mar 2019
School
Department
Course
Acct 2102
Exam 3 Study Guide
Fall 2016
Exam Format
25 Multiple choice and true/false question x 3 points each
75 points
3 Problems (Ch 10, 11, and 12: details below) x 10 points each
30 points
Total
105 points
Chapter 9
9-1
What is a budget?
A detailed plan for the future that is usually expressed in formal quantitative terms.
9-2
How does the budgeting process use planning and control?
Planning is used to develop goals and prepare budgets to help achieve those goals.
Controlling is used to gather feedback and ensure that the plan is being executed properly or
modified if need be.
9-3
What are the advantages of budgeting?
Communicates management’s plans throughout the organization
They force managers to thank about and plan for the future
Provides a means of allocating resources to those parts of the organization where
they can be used most effectively
Helps uncover potential bottlenecks before they occur
Coordinates activities of the entire organization by integrating the plans of its various
parts.
Helps ensure that everyone is pulling in the same direction
Define goals and objectives that can serve as benchmarks for valuating future
performances
9-4
What is the difference between an operating budget and a continuous budget?
Operating budget: budget that covers a one-year period corresponding to the company’s
fiscal year. Cuts the year into quarters, then the first quarter into months and the next three
quarters are kept as only whole quarters. Advantages requires periodic review and
reappraisal of budget data throughout the year.
Continuous budget: (Perpetual budget) 12 month budget that rolls forward one month (or
quarter) as the current month (quarter) is completed. Advantages keeps managers focuses
at least one year ahead so that they do not become too narrowly focused on short-term
results.
9-5
What are the advantages of self-imposed budgeting?
Individuals at all levels of the organization are recognized as members of the team
whose views and judgments are valued by top management
Budget estimates prepared by front-line managers are often more accurate and
reliable than estimates prepared by top managers who have less intimate knowledge
of markets and day-to-day
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Motivation is generally higher than when individuals participate in setting their own
goals than when the goals are impose from above. Self-imposed budgets create
commitment
A manager who is not able to meet a budget that has been imposed from above can
always say that the budget was unrealistic and impossible to meet. With a self-
imposed budget, this claim cannot be made.
9-6
What is budgetary slack and how do organizations make sure there is not too much slack in
the budget?
Making a budget that is too easy for a manager to achieve. They set a budget that is too easy
and thus this creates slack in the whole budget because extra resources are being disbursed
to that segment when it could be used elsewhere.
Most budgets are closely checked by upper management and constantly watch the budget
and the manager who created that budget to put more pressure on that manager.
9-7
What is the master budget?
Consists of a number of separate but interdependent budgets that formally lay out the
company’s sales, production, and financial goals. Culminates a cash budget, a budgeted
income statement, and a budgeted balance sheet.
9-8
What is the first budget that is prepared in the budgeting process?
Sales Budget
9-9
Be able to compute the following budgets (multiple choice questions):
- Schedule of cash collections Homework B #1 1-b
- Direct materials budget Homework B #2 1-a
- Direct labor budget Homework B #2 2
- Cash budget Homework B #3
Chapter 10
10-1
What is the flexible budget and how are the amounts in the budget calculated?
An estimate of what revenues and costs should have been, given the actual level of activity for
the period. Compares the actual costs to what the costs should have been for the actual level
of activity during that period.
10-2
What are some characteristics of flexible budgets?
Flexible budget covers a range of activities
Flexible budget is easy to change according to variations of production and sales
levels.
Flexible budget facilitates performance measurement and evaluation.
It takes into account the changes in the volume of activity.
Flexible budget replaces a static budget for control.
10-3
What are activity variances and how are they calculated (what amounts are compared)?
The difference between a revenue or cost item in the flexible budget and the same item in the
static planning budget. An activity variance is due solely to the difference between the actual
level of activity used in the flexible budget and the level of activity assumed in the planning
budget.
10-4
What are revenue and spending variances and how are they calculated (what amounts are
compared)?
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Document Summary

25 multiple choice and true/false question x 3 points each. 3 problems (ch 10, 11, and 12: details below) x 10 points each. A detailed plan for the future that is usually expressed in formal quantitative terms. Planning is used to develop goals and prepare budgets to help achieve those goals. Controlling is used to gather feedback and ensure that the plan is being executed properly or modified if need be. Operating budget: budget that covers a one-year period corresponding to the company"s fiscal year. Cuts the year into quarters, then the first quarter into months and the next three quarters are kept as only whole quarters. Advantages requires periodic review and reappraisal of budget data throughout the year. Continuous budget: (perpetual budget) 12 month budget that rolls forward one month (or quarter) as the current month (quarter) is completed.

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