Budget+Discussion



The annual budget is set within the framework of the long-term plan. It acts as the first step towards the achievement of the organisation's long-term objectives. Therefore the long term objectives must be established before any of the other budget tasks can be undertaken.

The principal budget factor is also known as the key budget factor or the limiting budget factor. The principal budget factor is a factor which limits the activities of an undertaking.

Which of the following would be included in the master budget?
 * Budgeted income statement
 * Budgeted cash flow
 * Budgeted balance sheet

Misty Co's budgetary control report for last month is as follows: $ $ $ Direct costs 61,100 64,155 67,130 Production overhead 55,000 56,700 54,950 Other overhead 10,000 10,000 11,500 - - 126,100 130,855 133,580
 * Fixed budget Flexed budget Actual results

The __volume variance__ is the increase in cost resulting from a change in the volume of activity, ie the difference between the __original budget__ and the __flexed budget__. Volume variance = $126,100 – $130,855 = $4,755 (A)

The __expenditure variance__ is the difference between the __flexed budge__t and the __actual results__.

Prepare the master budget and submit it to the senior managers for approval __7th__ Identify the principal budget factor (PBF) and prepare the budget for the PBF __3rd__ Establish the organisation's objectives __1st__ Prepare all remaining functional budgets __4th__ Form a budget committee and appoint a budget officer __2nd__ Review and co-ordinate the budgets - check their feasibility __5th__ Adjust the functional budgets if necessary __6th__

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 Flexible Budget
 Used to decompose total profit variance

 -We "flex" the master budget.

 Exact same as master, only with actual sales volume substituted in.

 1. Actual sales volume (only difference from master bud.)

 2. Budgeted sales price

 3. Budgeted fixed costs

 4. Budgeted unit variable costs

 -Budgeted input prices and input quantities per unit of output.

 Revenue =

 (Actual Quantity)(Budget Price) - Budgeted Cost

The variable costs are indicated by the change in budgeted expenditure when the budget is flexed

The use of standards is limited to situations where output can be measured. __Budgets can be used in situations where output cannot be measured but standards cannot be used in such situations__

Standards can include allowances for inefficiencies in operations, through the use of attainable standards. Standards and budgets are both used for planning and control purposes.

The principal budget factor is sometimes called the key budget factor or limiting budget factor. The organisation cannot extend its activities beyond the limits of the principal budget factor. The principal budget factor is often sales demand but it can also be other factors such as office space, the availability of key personnel or of cash.

the budget committee is responsible for the coordination and administration of budgets but not the actual preparation of budgets.

The master budget consists only of the budgeted income statement and the budgeted statement of financial position master budget also contains the budgeted statement of cash flow

The coordination of budget preparation is carried out by the budget committee A budget manual contains instructions governing the preparation of budgets A budget is a plan of what is intended to happen