4 Budgeting for Planning and Control Free Online FlashCards

What is a budget?

A budget is a quantified plan for a future period.

How is budgeted sales revenue calculated?

Budgeted sales revenue = $\text{expected unit sales} \times \text{expected selling price per unit}$.

Why is the sales budget usually prepared first?

The sales budget is usually prepared first because expected sales drive many of the other operating plans.

How does a production budget determine units to produce?

Units to produce = budgeted unit sales + desired ending finished-goods inventory − beginning finished-goods inventory.

What does a direct materials budget estimate?

Direct materials budgets estimate materials for planned production and may adjust for desired and beginning raw-material inventory when calculating purchases.

What does a selling and administrative expense budget cover?

A selling and administrative expense budget estimates nonmanufacturing operating costs, such as commissions, advertising, office salaries, and rent.

How do variable and fixed expenses differ?

Variable expenses change with activity; fixed expenses remain constant within a relevant range.

How do managers use budgets for planning?

Planning uses budgets to set targets and decide in advance how resources will be used.

Why can a static budget mislead when actual activity differs from plan?

A static budget is prepared for one planned activity level; when actual activity differs substantially, direct comparisons with actual costs can be misleading.

How is budgeted direct labor cost determined?

Budgeted direct labor cost is based on the labor hours required for planned production multiplied by the expected wage rate.

What costs are included in manufacturing overhead?

Manufacturing overhead includes production costs other than direct materials and direct labor, such as factory utilities or equipment depreciation.

How do managers use budgets for control?

Control compares actual performance with the plan, identifies meaningful differences, and investigates their causes.