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Chapter 10

ACCY 307 Chapter Notes - Chapter 10: Specific Volume, Sensitivity Analysis, Kaizen

Course Code
ACCY 307
Tamara Phelan

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ACCY 307
Chapter 10: Static and Flexible Budgets
I. Discuss the relationships among budgets, long-term strategies, and short-term operating plans
a. Budget= formulized financial plan for operations of an organization for a specified future period
i. An organization’s financial roadmap
ii. Reflects mgmt.’s forecast of the financial effects of an organization’s plans for one or more future
time periods
b. Budgeting and the Strategic Management Process
c. Budget cycle= a series of steps that organizations follow to develop and use budgets
II. Describe a master budget and explain how it is prepared; explain how operating budgets are developed and
a. Master Budgets
i. Master budget= a comprehensive plan for the upcoming accounting period
1. Usually prepared for a one-year period
2. Based on a series of budget assumptions
ii. The master budget consists of several subsidiary budgets, in 2 categories:
1. Operating budgets= management’s plan for revenues, production, and operating costs
2. Financial budgets= management’s plan for capital expenditures, long-term financing,
cash flows, and short-term financing
b. Developing a Master Budget
i. The master budget is developed using a set of budget assumptions, which are plans and
predications about next period’s operating activities
ii. Operating budget is prepared first, followed by the financial budgets
c. Operating Budgets
i. The operating budget is created by preparing the following individual budgets, in this order:
1. Sales forecast
2. Revenue budget
3. Production budget
a. Direct materials budget
b. Direct labor budget
c. Manufacturing overhead budget
4. Cost of goods sold budget
5. Support department budgets
6. Income Statement
d. Financial Budgets
i. The financial budget is created by preparing the following individual budgets, in this order:
1. Capital budget
2. Long-term financing budget
3. Cash Receipts and Disbursements budget
4. Short-term financing budget
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