To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com CHAPTER THE MASTER BUDGET Learning Objectives After reading and studying Chapter 8, you should be able to answer the following questions: How are strategic planning and tactical planning related to budgeting? What is the starting point of a master budget and why? What are the various components of a master budget, and how are they prepared? Why is the cash budget so important in the master budgeting process? How and why are budgeted financial statements prepared at the end of the budgeting process? What benefits are provided by a budget? (Appendix) How does a budget manual facilitate the budgeting process? ©2011 Cengage Learning All Rights Reserved SM Cost Accounting 8th Edition by Raiborn and Kinney Visit http://downloadslide.blogspot.com to download more slides, ebooks, solution manual, and test bank To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Chapter 08: The Master Budget IM Terminology Budget: a financial plan for the future based on a single level of activity; the quantitative expression of a company’s commitment to planned activities and resource acquisition and use Budgeting: the process of formalizing plans and translating qualitative narratives into a documented quantitative format Budget manual: a detailed set of documents that provides information and guidelines about the budgetary process Budget slack: an intentional underestimation of revenues and/or overestimation of expenses in a budgeting process Continuous budget: an on-going 12-month budget maintained by successively adding a new budget month (12 months into the future) as each current month expires Financial budget: a plan that combines the monetary details from the operating budgets; includes the cash and capital budgets of a company as well as the pro forma financial statements Imposed budget: a budget developed by top management with little or no input from operating personnel; operating personnel are then informed of the budget goals and constraints Master budget: the comprehensive set of budgets, budgetary schedules, and pro forma organizational financial statements Operating budget: a budget expressed in both units and dollars; includes components of the various pro forma financial statements such as a sales budget, production budget, purchases budget, direct labor budget, overhead budget, and selling and administrative budget Participatory budget: a budget that has been developed through a process of joint decision making by top management and operating personnel Rolling budget: (see continuous budget) Strategic planning: top-level management planning on a long-range basis (5 to 10 years) that produces a statement of long-range organizational goals and the strategies and policies that will help achieve those goals Tactical planning: Short-term planning (1 – 18 months) that determines how the organization’s strategic plans will be achieved ©2011 Cengage Learning All Rights Reserved SM Cost Accounting 8th Edition by Raiborn and Kinney Visit http://downloadslide.blogspot.com to download more slides, ebooks, solution manual, and test bank To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Chapter 08: The Master Budget IM Lecture Outline LO.1: How are strategic planning and tactical planning related to budgeting? A Introduction Planning is the cornerstone of effective management and in complex situations successful planning requires that managers predict, with reasonable precision, the key variables that affect company performance a A goal without a plan is just a wish This chapter covers the budgeting process and preparation of the master budget B The Budgeting Process Budgeting is the process of formalizing plans and translating qualitative narratives into a documented, quantitative format a A budget is the quantitative expression of a company’s commitment to planned activities and resource acquisition and use b A budget is a type of standard that allows variances to be computed and feedback about those variances to be given to the appropriate managers c Budgets can be viewed from a long-term (strategic) or short-term (tactical) perspective Strategic Planning a Strategic planning is the process of developing a statement of long-range (5–10 years) goals for the organization and defining the strategies and policies that will help the organization achieve those goals b Key variables that are believed to be the direct causes of the achievement or nonachievement of organizational goals and objectives should be identified (see text Exhibit 8-1) c i Internal factors are those under the control of management (e.g., access to resources and core competencies) ii External factors are noncontrollable variables such as competitor actions and the political/regulatory climates in which the company operates During the strategic planning process, managers agree on organizational goals and objectives and how to achieve them i This requires organizing complex activities, managing diverse resources, and formalizing plans ©2011 Cengage Learning All Rights Reserved SM Cost Accounting 8th Edition by Raiborn and Kinney Visit http://downloadslide.blogspot.com to download more slides, ebooks, solution manual, and test bank To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Chapter 08: The Master Budget IM Tactical Planning a Tactical planning is the process of determining the specific means or objectives by which the strategic plans of the organization will be achieved; it is short range in nature (usually 1– 18 months) i Such short-term tactical plans are considered “single use” plans and have been developed to address a given set of circumstances or a specific time frame ii The annual budget is an example of a single use tactical plan b Text Exhibit 8-2 illustrates the relationships between strategic planning, tactical planning, and budgeting c A well-prepared budget can effectively communicate objectives, constraints, and expectations to personnel throughout an organization about: i what is to be accomplished; ii how those accomplishments are to be achieved; and iii the manner in which resources are to be allocated d Employee participation is needed in the budget process to integrate necessary information from various sources as well as to obtain individual managerial commitment to the resulting budget i The greater the employee participation in the budgeting process, the greater the time and cost involved ii Budgets developed with significant employee participation are said to be built from the bottom of the organization upward e A well-prepared budget translates a company’s strategic and tactical plans into usable guidelines for company activities i f Management must review the budget prior to its approval and implementation in order to determine if the forecasted results are acceptable A budget, having been accepted, is then implemented and becomes a performance benchmark i Control functions include making actual-to-budget comparisons, determining variances, investigating variance causes, taking necessary corrective action, and providing feedback to operating managers ii Feedback, both positive and negative, is essential to the control process and must be provided in a timely manner as illustrated in text Exhibit 8-3 g The budgeting process results in the preparation of a master budget i The master budget is a comprehensive set of budgets, budgetary schedules, and budgeted (pro forma) organizational financial statements ©2011 Cengage Learning All Rights Reserved SM Cost Accounting 8th Edition by Raiborn and Kinney Visit http://downloadslide.blogspot.com to download more slides, ebooks, solution manual, and test bank To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Chapter 08: The Master Budget IM LO.2: What is the starting point of a master budget and why? C The Master Budget The master budget includes both the operating and financial budgets as illustrated in text Exhibit 8-4 a An operating budget is a budget that is expressed in both units and dollars i It includes components of the various pro forma financial statements:  Sales budget;  Production budget;  Purchases budget;  Direct labor budget;  Overhead budget; and  Selling and administrative budget b A financial budget is a budget that aggregates monetary details from the operating budgets i It includes the following components:  Capital expenditures budget;  Cash budget;  Pro forma balance sheet;  Pro forma income statement;  Pro forma statement of cash flows; and  Pro forma statement of retained earnings The master budget is prepared for a specific time period and is static (rather than flexible) in the sense that it is based on a single level of output demand a The budget is typically prepared for a year and then subdivided into quarterly and monthly periods The budgetary process begins with sales a The output level of sales or service quantities selected for use in the master budget preparation affects all other organizational components; it is essential that all the components interrelate in a coordinated manner i Text Exhibit 8-5 illustrates the budgetary process showing how the various functional areas of a manufacturing organization interrelate ©2011 Cengage Learning All Rights Reserved SM Cost Accounting 8th Edition by Raiborn and Kinney Visit http://downloadslide.blogspot.com to download more slides, ebooks, solution manual, and test bank To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Chapter 08: The Master Budget IM b The process begins with the sales department’s estimates of the types, quantities, and timing of sales c The production manager combines sales estimates with information from purchasing, human resources, operations, and facilities to develop a production budget d The treasurer combines the sales estimates with cash collection patterns and the production requirements information with cash payment patterns to develop a cash budget LO.3: What are the various components of a master budget, and how are they prepared? D The Master Budget Illustrated Text Exhibit 8-6 presents the beginning balance sheet for Lewis & Clark Corp., which is used in the text to illustrate the preparation of the master budget a The sales budget is prepared in both units and sales dollars; dollar sales figures are calculated by multiplying sales quantities by product selling prices (see text Exhibit 8-7) Production Budget a The production budget follows naturally from the sales budget and uses information regarding the type, quantity, and timing of units to be sold (see text Exhibit 8-8) b Sales information is combined with information on beginning and ending inventories so that managers can schedule the necessary production: Units to be sold + desired ending units = total needs – beginning units = Units to be produced c Ending inventory policy is generally specified by company management, and desired ending inventory is usually a function of the quantity and timing of demand in the upcoming period as related to the capacity and speed of the firm to produce particular units i Other alternatives include a constant amount of inventory, a buildup of inventory for future high-demand periods, or near-zero inventory under a just-in-time system ii Managers should consider the high costs of stockpiling inventory before making a decision about how much inventory to keep on hand Purchases Budget a Direct material must be purchased each period in quantities sufficient to meet production needs and to conform to the company’s desired ending inventory policies b Companies may have different policies for the direct material associated with different products or for different seasons of the year c The purchases budget for direct and indirect materials is first stated in whole units of finished products (see text Exhibit 8-9) ©2011 Cengage Learning All Rights Reserved SM Cost Accounting 8th Edition by Raiborn and Kinney Visit http://downloadslide.blogspot.com to download more slides, ebooks, solution manual, and test bank To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Chapter 08: The Master Budget IM d The budget is subsequently converted to individual direct material component requirements and following that, to cost of purchases amounts as illustrated in text Exhibit 8-9 Personnel Budget a The personnel budget reports labor requirements for the factory, sales force, and office staff i Budgets are prepared in terms of total number of people, specific number of worker types (skilled laborers, setup helpers, salespeople, clerical personnel, etc.), production hours needed, and vacation time provided ii Labor costs are computed from items such as union labor contracts, minimum wage laws, fringe benefit costs, payroll taxes, and commission and bonus arrangements Direct Labor Budget a The direct labor budget consists of direct labor cost estimates that are based on the standard hours of production needed to produce the number of units shown in the production budget (see text Exhibit 8-10) b The average wage rate includes the direct labor payroll rate, payroll taxes, and fringe benefits; these items usually add between 25 and 30 percent to the base labor cost Overhead Budget a The overhead budget shows the estimated cost of each overhead item for the period(s) (see text Exhibit 8-11) b All fixed and variable overhead costs must be specified, and mixed costs must be separated into their fixed and variable components so that budgeted overhead can be computed using the equation of a straight line: Total budgeted overhead = Total budgeted fixed overhead + (budgeted unit variable overhead cost x budgeted number of units) Selling and Administrative Budget a The selling and administrative (S&A) budget includes the estimated selling and administrative expenses for the period(s) (see text Exhibit 8-12) b The operating expenses for each month can be predicted in the same fashion as overhead costs i Sales figures rather than production levels are used as the measure of activity in preparing this budget The Capital Budget a Capital budgeting is the process of assessing an economic entity’s long-term needs in the area of plant and equipment purchases and budgeting for those expenditures b Although the capital budget (see text Exhibit 8-13) is prepared separately from the master budget, capital expenditures affect the master budgeting process because such purchases affect depreciation expense and cash payments ©2011 Cengage Learning All Rights Reserved SM Cost Accounting 8th Edition by Raiborn and Kinney Visit http://downloadslide.blogspot.com to download more slides, ebooks, solution manual, and test bank To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Chapter 08: The Master Budget IM LO.4: Why is the cash budget so important in the master budgeting process? The Cash Budget a The cash budget might be the most important schedule prepared during the budgeting process because a company cannot survive without cash i A basic model for the cash budget is provided in the text at the beginning of this section b Cash Receipts and Accounts Receivable c i Managers translate sales revenue information into actual cash receipts through the use of an expected collection pattern This is illustrated in the text using the Lewis & Clark Corp example and text Exhibits 8-14 and 8-15 ii The balances of the Accounts Receivable, Allowance for Uncollectibles, and Sales Discounts accounts can be projected once such a schedule of cash collections has been prepared (refer to the T-accounts in the text) Cash Disbursements and Accounts Payable i Management can prepare an estimated cash disbursements schedule for accounts payable using the purchases information ii Purchases are translated into actual cash disbursements through the use of an expected payment pattern This is illustrated in the text using the Lewis & Clark Corp example and text Exhibits 8-16 and 8-17 iii The activity in the Accounts Payable account is illustrated in a T-account in the text d Cash budgets can be used to: predict seasonal fluctuations in any potential cash flow, indicating a need for short-term borrowing and a potential schedule of repayments; show the possibility of surplus cash that could be used for investment; and measure the performance of the accounts receivable and accounts payable departments by comparing actual to scheduled collections, payments, and discounts taken i Cash flow provides the short-run source of power in a business to negotiate and act ii Text Exhibit 8-18 provides ten ways for a small business to improve its cash flow LO.5: How and why are budgeted financial statements prepared at the end of the budgeting process? 10 Budgeted Financial Statements a Budgeted financial statements are prepared for the period(s) and reflect the results that will be achieved if the estimates and assumptions used for all previous budgets actually occur i The statements allow management to determine if the predicted results are acceptable for the period; management then has the opportunity to change and adjust items before beginning the new period if the predicted results are not acceptable ©2011 Cengage Learning All Rights Reserved SM Cost Accounting 8th Edition by Raiborn and Kinney Visit http://downloadslide.blogspot.com to download more slides, ebooks, solution manual, and test bank To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Chapter 08: The Master Budget IM b Cost of Goods Manufactured Schedule c i Management must prepare a schedule of cost of goods manufactured in order to determine cost of goods sold expense for the pro forma income statement ii Text Exhibit 8-19 provides the formula for computing cost of goods manufactured Income Statement i A pro forma (projected) income statement can now be prepared using much of the information previously developed in determining the revenues and expenses for the period ii Text Exhibit 8-20 provides a pro forma income statement for Lewis & Clark Corp d Balance Sheet i A budgeted balance sheet showing the company’s pro forma financial position at the end of the budgeting period is prepared next ii Text Exhibit 8-21 presents the expected ending asset, liability, and stockholders’ equity balances for Lewis & Clark Corp e Statement of Cash Flows i A pro forma statement of cash flows (SCF) can now be prepared using information found in the income statement, balance sheet, and cash budget ii Text Exhibit 8-22 presents the budgeted cash flow statement for Lewis & Clark Corp iii The budgeted cash flow statement can assist managers in performing the following functions:  Judging the company’s ability to handle fixed cash outflow commitments;  Adapting to adverse changes in business conditions;  Undertaking new commitments; and  Assessing the quality of company earnings by indicating the relationship between net income and net cash flow from operations iv Whereas the cash budget is essential to current cash management, the budgeted SCF gives managers a more comprehensive view of cash flows by rearranging them into three distinct major activities (operating, investing, and financing) thus enabling them to judge whether the specific anticipated flows are consistent with the company’s strategic plans ©2011 Cengage Learning All Rights Reserved SM Cost Accounting 8th Edition by Raiborn and Kinney Visit http://downloadslide.blogspot.com to download more slides, ebooks, solution manual, and test bank To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Chapter 08: The Master Budget IM 10 LO.6: What benefits are provided by a budget? E Concluding Comments Benefits of a well-prepared budget a Budgets are guides to help managers align resource activities and resource allocations with organizational goals b Budgets are a vehicle to promote employee participation, cooperation, and departmental coordination c Budgets help managers carry out their managerial functions of planning, controlling, problem solving, and performance evaluating d Budgets provide a basis on which to sharpen management’s responsiveness to changes in both internal and external factors e Budgets serve as a model that provides a rigorous view of future performance of a business in time to consider alternative measures Demand must be predicted as accurately and with as many details as is possible because of its fundamental importance in the budgeting process a Sales forecasts should indicate type and quantity of products to be sold, geographic locations of the sales, types of buyers, and times when the sales are to be made b Such detail is necessary because different products require different production and distribution facilities; different customers have different credit terms and payment schedules; and different seasons or months may require different shipping schedules or methods Estimated sales demand has a pervasive impact on the master budget a Managers use as much information as is available and may combine several estimation approaches in arriving at a valid prediction b The combining of prediction methods provides managers with a technique to confirm estimates and reduce uncertainty c Ways of estimating future demand include: i canvassing sales personnel for a subjective consensus; ii making simple extrapolations of past trends; iii using market research; and iv employing statistical and other mathematical models Care should be taken to use realistic, rather than optimistic or pessimistic forecasts of revenues and costs a Computer models can be utilized that allow repetitive simulations to be run after changes are made to one or more factors ©2011 Cengage Learning All Rights Reserved SM Cost Accounting 8th Edition by Raiborn and Kinney Visit http://downloadslide.blogspot.com to download more slides, ebooks, solution manual, and test bank To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Chapter 08: The Master Budget IM 11 A master budget is normally prepared for a year Some companies use a continuous budget a A Continuous budget is an ongoing 12-month budget at all points in time during a budget period; thus, a new budget month (12 months into the future) is added as each current month expires b Benefits of a continuous budget include: i eliminating a fiscal year mind-set by recognizing that business is an on-going operation and should be managed accordingly; ii allowing management to take corrective steps as forecasted business conditions change; iii eliminating the unrealistic “gap” that occurs with the first iteration of each annual budget; and iv reducing or eliminating the budget planning process that occurs at the end of each fiscal year c Management must find the causes of the differences if actual results are different from plans d The budget may or may not be revised if actual performance is substantially less than what was expected, depending on the causes of the variances i Alterations may be made to the budget if actual performance is substantially better than expected, although management might decide not to alter the budget so that the positive performance is highlighted ii A 2005 survey of senior finance executives in the United States, United Kingdom, France, and Germany revealed that budget revisions may not occur because the system in use is too complex or detailed:  Almost two-thirds said they update their financial plans only twice a year or less;  Current forecasting systems are highly inaccurate; and  Other information obtained from the survey is provided in text Exhibit 8-23 Budget slack is the intentional underestimation of revenues and/or overestimation of expenses in a budgeting process for the purpose of including deviations that are likely to occur so that results will occur within budget limits a The presence of slack in the budget allows subordinate managers to achieve their objectives with less effort than would be necessary if there were no slack b Slack creates problems due to the considerable interaction of the budget factors and has the potential to create a tremendous negative impact on organizational effectiveness and efficiency c Top management can try to reduce slack by tying actual performance to the budget through a bonus system A participatory budget is a budget that has been developed through a process of joint decision making by top management and operating personnel ©2011 Cengage Learning All Rights Reserved SM Cost Accounting 8th Edition by Raiborn and Kinney Visit http://downloadslide.blogspot.com to download more slides, ebooks, solution manual, and test bank To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Chapter 08: The Master Budget IM 12 An imposed budget is a budget that top management develops with little or no input from operating personnel; operating personnel are then informed of the budget objectives and constraints Managers should consider extending their budgeting process to recognize the concepts of activities and cost drivers in a manner consistent with activity-based management LO.7: (Appendix) How does a budget manual facilitate the budgeting process? F The Budget Manual The budget manual is a detailed set of documents that provides information and guidelines about the budgetary process, and should include the following: a statements of the budgetary purpose and its desired results; b a listing of specific budgetary activities to be performed; c a calendar of scheduled budgetary activities; d sample budgetary forms; and e original, revised, and approved budgets The statements of budgetary purpose should flow from general to specific The budgetary activities should be listed by position, not by person The budget calendar should indicate a timetable for all budget activities and should be keyed directly to the activities list The sample forms should be easy to understand and may include standardized worksheets The final section includes the budgets generated by the budgeting process ©2011 Cengage Learning All Rights Reserved SM Cost Accounting 8th Edition by Raiborn and Kinney Visit http://downloadslide.blogspot.com to download more slides, ebooks, solution manual, and test bank To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Chapter 08: The Master Budget IM 13 Multiple Choice Questions (LO.1) Short-tem planning that produces “single use” plans such as the annual budget is referred to as a strategic planning b managerial planning c tactical planning d internal planning (LO.1) A budget sets the resource constraints under which managers must operate for the upcoming budget period The control phase includes all of the following except: a making actual-to-budget comparisons b providing feedback to operating managers c investigating variances d assigning blame for poor performance (LO.2) All of the following are operating budgets except: a selling and administrative budget b purchases budget c cash budget d sales budget (LO2) When preparing the series of annual operating budgets, management usually starts the process with the: a cash budget b budgeted balance sheet c sales budget d production budget (LO.3) G Company has beginning inventory of 4,000 units Management estimates that 35,000 units will be sold during the first quarter with a 10% increase in sales each quarter It is the company’s policy to maintain an ending inventory equal to 25% of the next quarter’s sales Each unit sells for $3.00 How much sales revenue should be budgeted for the third quarter? a $84,700 b $115,050 c $126,000 d $127,050 (LO.3) L Company’s budget calls for the following production: Quarter Quarter 45,000 units 38,000 units Quarter Quarter 34,000 units 48,000 units Each unit of product requires three pounds of direct material The company’s policy is to begin each quarter with an inventory of direct material equal to 30% of that quarter’s direct material production requirements Budgeted direct material purchases (in pounds) for the third quarter would be: a 114,600 b 89,400 c 38,200 d 29,800 ©2011 Cengage Learning All Rights Reserved SM Cost Accounting 8th Edition by Raiborn and Kinney Visit http://downloadslide.blogspot.com to download more slides, ebooks, solution manual, and test bank To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Chapter 08: The Master Budget IM 14 (LO.3) The following beginning and ending inventory levels (in units) are planned for the upcoming fiscal year: Raw material Work-in-process Finished goods Beginning of Year 40,000 10,000 80,000 End of Year 50,000 10,000 50,000 Two units of raw material are needed to produce each unit of finished product If the company plans to sell 480,000 units during the upcoming fiscal year, the number of units it would have to manufacture during the year would be: a 510,000 units b 480,000 units c 450,000 units d 440,000 units (LO.3) D Company is planning to sell 2,000 units and produce 2,200 units during the upcoming month Each unit requires ounces of raw material at a cost of $15.00 per ounce and one-half hour of direct labor at a rate of $12.50 per hour Overhead is applied at a rate of 120% of direct labor costs The company has 2,000 ounces of raw material in its beginning inventory and wants to have 2,400 ounces in its ending inventory How much direct labor cost should be budgeted for the upcoming month? a $27,500 b $16,500 c $13,750 d $12,500 (LO.3) E Company is planning to sell 2,000 units and produce 2,200 units during the upcoming month Each unit requires ounces of raw material at a cost of $15.00 per ounce and one-half hour of direct labor at a rate of $12.50 per hour Overhead is applied at a rate of 120% of direct labor costs The company has 2,000 ounces of raw material in its beginning inventory and wants to have 2,400 ounces in its ending inventory How much overhead cost should be budgeted for the upcoming month? a $27,500 b $16,500 c $13,750 d $12,500 10 (LO.4) The following credit sales are budgeted by J Company: January February March April May $124,000 120,000 135,000 140,000 142,000 The company's past experience indicates that 50% of receivables are collected in the month of sale, 30% in the month following the sale, and 20% in the second month following the sale What amount should be budgeted as cash receipts for March? a $135,000 b $128,300 c $67,500 d $60,800 ©2011 Cengage Learning All Rights Reserved SM Cost Accounting 8th Edition by Raiborn and Kinney Visit http://downloadslide.blogspot.com to download more slides, ebooks, solution manual, and test bank To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Chapter 08: The Master Budget IM 15 11 (LO.4) M Company budgeted direct materials purchases of $150,000 in April and $240,000 in May It is the company’s practice to pay for 70% of its purchases in the month of purchase and the remaining 30% in the following month Other costs are all paid during the month incurred During May, the following items were budgeted: Wages expense Purchase of office equipment Selling and administrative expenses Depreciation expense $75,000 36,000 24,000 18,000 What amount should be budgeted for cash disbursements for May? a $366,000 b $348,000 c $324,000 d $213,000 12 (LO.5) Select the correct formula to compute cost of goods manufactured a Beginning WIP + Raw Materials Purchased + Direct Labor + Factory Overhead – Ending WIP b Beginning Finished Goods + Cost of Goods Sold – Ending Finished Goods c Raw Materials Used + Direct Labor + Factory Overhead d Beginning WIP + Raw Materials Used + Direct Labor + Factory Overhead – Ending WIP 13 (LO.6) A continuous budget: a presents a statement of expectations for a period but does not present a firm commitment b drops the current month or quarter and adds a future month or a future quarter as the current month or quarter is completed c presents the plan for only one level of activity and does not adjust to changes in the level of activity d presents the plan for a range of activity so that the plan can be adjusted for changes in activity 14 (LO.6) All of the following are benefits of budgeting except: a budgeting provides assurance that the company will achieve its objectives b budgeting facilitates the coordination of activities c budgeting requires managers to plan ahead d budgeting provides specific benchmarks for evaluating performance 15 (LO.7) (Appendix) Which of the following items should be included in a company’s budget manual? a Sample budgetary forms b Calendar of scheduled budgetary activities c Original, revised, and approved budgets d All of the above should be included ©2011 Cengage Learning All Rights Reserved SM Cost Accounting 8th Edition by Raiborn and Kinney Visit http://downloadslide.blogspot.com to download more slides, ebooks, solution manual, and test bank To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Chapter 08: The Master Budget IM 16 Multiple Choice Solutions c d c c d 35,000 units x 1.12 = 42,350 x $3.00 = $127,050 a (CMA Adapted) Q1 Direct material in pounds: Production needs Desired ending inventory Total required Desired beginning inventory To be purchased Q3 Q4 114,000 30,600 144,600 (34,200) 110,400 102,000 43,200 145,200 (30,600) 114,600 144,000 c (CMA Adapted) Units to be sold Desired ending inventory Total required Desired beginning inventory To be produced 135,000 34,200 169,200 (40,500) 128,700 Q2 480,000 50,000 530,000 (80,000) 450,000 c 2,200 units x DLH = 1,100 DLH x $12.50 = $13,750 b 2,200 units x DLH = 1,100 DLH x $12.50 = $13,750 x 1.2 = $16,500 10 b ($124,000 x 2) + ($120,000 x 3) + ($135,000 x 5) = $128,300 11 b ($150,000 x 3) + ($240,000 x 7) + $75,000 + $36,000 + $24,000 = $348,000 12 d 13 b (CMA Adapted) 14 a 15 d ©2011 Cengage Learning All Rights Reserved SM Cost Accounting 8th Edition by Raiborn and Kinney Visit http://downloadslide.blogspot.com to download more slides, ebooks, solution manual, and test bank  ... SM Cost Accounting 8th Edition by Raiborn and Kinney Visit http://downloadslide.blogspot.com to download more slides, ebooks, solution manual, and test bank To download more slides, ebook, solutions... SM Cost Accounting 8th Edition by Raiborn and Kinney Visit http://downloadslide.blogspot.com to download more slides, ebooks, solution manual, and test bank To download more slides, ebook, solutions... SM Cost Accounting 8th Edition by Raiborn and Kinney Visit http://downloadslide.blogspot.com to download more slides, ebooks, solution manual, and test bank To download more slides, ebook, solutions