Chapter 9 study plan notes Budgets are future oriented Technology has made it easier for managers to perform all of the following tasks except removing slack from the budget Order of preparing budgets 1 7 Sales budget production budget DM budget budgeted income statement cash payments budget combined cash budget budgeted balance sheet Which of the following is the starting point for the master budget The sales budget The income statement is part of which element of a company s master budget The operating budgets The usual starting point for a direct labor budget for a manufacturer is the production budget Managers will sometimes build slack into their budgets to protect themselves against unanticipated expenses or lower revenues The variance is the difference between actual and budgeted figures and is used to evaluate how well the manager controlled operations during the Budget committee are often used by companies to review submitted budgets make revisions as needed and approve the final budgets Safety stock is extra inventory of finished goods that is kept on hand in case demand is higher than predicted or problems in the factory slow period production The sales budget and production budget are examples of operating budgets Participative budgeting is a budgeting process that begins with departmental managers and flows up through middle management to top management Rolling budget is a budget that is continuously updated by adding months to the end of the budgeting period Master budget is the comprehensive planning document for the entire organization Financial budgets project both the collection and payment of cash and forecast the company s budgeted balance sheet Production budget is used to forecast how many units should be made to meet the sales projects When an organization builds its budget from the ground up it is using zero based budgeting Strategic planning is the process of setting long term goals that may extend several years into the future The following budgets are all financial budgets except for budgeted income statement Which of the following would not appear in a cash budget Depreciation expense Budgeting A plan for a specific period of time helps management determine how to use resources used to estimate future costs and revenues it is an ongoing process creating long term goals setting key strategies putting plans into action analyzing the results Participative budgeting pros lower level managers closer to action managers become more motivated Cons process can become very complex managers may build slack into their budget Starting point for developing budgets prior year or actual results or zero based budget Benefits of budgeting forces managers to plan promotes coordination and communication provides a benchmark Operating budget Sales budget production budget direct materials budget direct labor budget manufacturing overhead budget operating expense budget busdgeted income statement Financial budgets capital expenditures budget cash budsget budgeted balance sheet Financial budget components capital expenditures budget cash collections cash payments combined cash budgeted balance sheet Sensitivity analysis what if technique asking what result would happen if something changes Chapter 10 study plan notes Which is not one of the potential advantages of decentralization increases goal congruence The quaker foods division of PepsiCo is most likely treated as a investment center When management only investigates budget variances that are large this is an example of management by exception Which of the following is a disadvantage of financial performance measures such as ROI and residual income Focus on short term performance For which type of responsibility center would it be appropriate to measure performance using ROI Investment center Flexible budget contains a plan for a range of activity levels so that the plan can be adjusted to reflect changes in activity levels Volume variance on a flexible budget report is the difference between the master budget and the flexible budget Average repair time on products returned for service would be a typical measure for which of the following balanced scorecard perspectives Internal business growth Which of the following balanced scorecard perspectives essentially asks the question can we continue to improve and create value Learning and Decentralization splitting operations into different operating segments Advantages frees top managements time use of expert knowledge improves customer relationships provides training improves motivation and retention Disadvantages duplication of costs potential problems achieving goal congruence Responsibility center part of an organization whose manager is accountable for planning and controlling activities Types include cost costs only revenue costs of own sales operation profit both revenues and costs investment stand alone companies Responsibility accounting system for evaluating performance of each responsibility center and its manager Variance difference between actual and budget Return on investment measures the amount of income an investment center earns relative to the size of its assets Residual income determines whether the division has created any excess income above managements expectations Flexible budget budget prepared for a different level of volume than that which was originally anticipated Volume variance difference between the master budget and the flexible budget Lag indicators reveal the results of past actions and decisions Lead indicators predict future performance Perspectives on balanced scorecard financial how do we look to shareholders customer how do customers see us internal business innovation operations and post sales support learning and growth employee capabilities information system capabilities company s climate for action Chapter 11 study plan notes Which of the following would be least likely to cause a direct material quantity standard to be outdated Demand for the product has increased steadily over the past two years in spite of a worsening economy The direct materials price variance is calculated using the actual quantity of materials purchased All of the following could cause an unfavorable direct materials quantity variance except an increase in selling price The direct labor efficiency variance is calculate using the standard labor rate per hour Advantages of using standard costs include all of the following except that the price sensitivity of