| What is budgeting? | Budgets are a quantitative expression of a proposed plan of action by management for a future time and a tool to the coordination and implementation of the plan. |
| What is a master budget? | Comprehensive, organization-wide set of budgets.
• Coordinates all financial projections in individual budgets.
• Time coverage: usually 1 fiscal year, use of rolling budgets.
• Embraces impact of operating and financing decisions. |
| What are the roles and functions of a budget? | 1. Planning: To distribute ressources, plan strategically and coordinate across the company.
2. Process: Having a budget can lead managers in the proper direction and make them act in the best interest of the company on a long term basis.
3. Accountability: Managers are accountable for fulfilling their budget, can be used to monitor managers and their performance and creates motivation by setting goals. |
| How can budgeting create motivation? And how can it harm the company long term? | By having achievable targets so managers can actually achieve the targets. However, this may cause managers to do things to achieve their budget that harm the company long term. |
| What is beyond budgeting? | Beyond budgeting is a regular budget, but a managers performance is also measured by subjective evaluations and evaluation of non-financial measures. |
| What are the two ways we determine budgeted numbers? And how does Zero-based budgeting fit in here? | 1. Based on past performance
Easy and effective, but may incorporate suboptimal performance and ignores future expected changes.
2. Based on standards
By evaluating each cost and justifying them annually. Zero-based budgeting is the extreme approach, evaluating all costs based on standards. |
| What 3 budgets does the master budget consist of? | The master budget consists of 3 parts:
1. The operating budget. (Detailed projection of expected revenue and costs)
2. The capital expenditure budget (Details planned purchases of fixed assets)
3. The cash or financial budget. (Estimation of cash flow) |
| What 3 budgets does the operational budget consist of? | The operating budget is decomposed into:
1. The sales budget (Estimates revenue)
2. The COGS budget (Estimate COGS)
3. The operating expenses budget (Estimate operating expenses, general and administrative expenses) |
| How would you typically calculate the revenue budget? | All product, their quantitaties and sales prices. Calculate revenue. |
| How would you typically calculate the production budget? | Budgeted sales + target closing finished goods stock - opening finished goods stock = Units to be produced |
| How would you typically calculate the direct materials usage budget? | See picture |
| How would you typically calculate the direct materials purchases budget? | See picture |
| How would you typically calculate the direct manufacturing labor budget? | See picture |
| How would you typically calculate the Manufacturing overhead budget? | See picture |
| How would you typically calculate the unit costs of manufacturing finished goods budget? | See picture |
| How would you typically calculate the cost of goods sold budget? | See picture |
| How would you typically calculate the operating profit budget? | See picture |
| What methods of budgeting do we have? | 1. Kaizen budgeting
Kaizen means continuous improvement. Hence, the kaizen budgeting is a budgetary approach that explicitly incorporates continuous improvement into the budget numbers during the budget period.
2. Activity-based budgeting (ABB)
Activity-based budgeting focuses on the budgeted cost of activities necessary to produce and sell products and services. |
| What responsibility centers do we have? | 1. Cost center: Department or function that does not directly contribute to profit but still costs money to operate.
2. Revenue center: Department responsible for generating sales.
3. Profit center: A center that directly contributes to the company’s bottom line.
4. Investment center: An investment center is a business unit in a firm that can utilize capital to contribute directly to a company's profitability |
