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Calculate Units to Be Produced
Expected Unit Sales + Units in Desired Ending Inventory- Units in Beginning Inventory
DM Needed for Production + DM in Desired Ending Inventory - DM in Beginning Iventory
A plan of action expressed in financial terms.
What is the purpose of budgeting?
Budgeting is a planning and control tool used by managers.
Define strategic plan.
Identifies strategies for future activities and operations, generally covering at least five years.
List the steps in the planning and control process.
- Develop a strategic plan
- Develop long-term and short-term objectives.
- Develop short-term plans.
- Create budgets based on short-term plans.
- Compare actual results with planned (budgeted) amounts.
- Take corrective action
List the advantages of budgeting
- Force managers to plan.
- Provide info that can aid decision making.
- Provide standards used for performance evaluation and control
- Improve communication and coordination.
Involves comparing actual results with budgeted amoutn and take correctiv action whenever actual performance deviates significantly from planned performance.
Define continuous budget.
A moving twelve month budget. As a month expires in the budget, an additional month is added so that the company always has a twelve- month plan on hand.
Define master budget.
A comprehensive financial plan consisting of various individual budgets.
Define sales forecast
The basis for the sales budget and usually the responsibility of the marketing department.
Define sales budget
The expected sales in units and dollars
Define production budget.
Indicates the number of units of finished product to be produced in order to meet sales needs and inventory requirements
Calculate the cost of the DM to be purchased.
Quantity of DM to be purchased x the Expected Cost per Unit of DM
Define DL Budget.
A budget of planned expenditures for DL. It indicates the rate per hour and the number of hours necessary to meet production requirements.
Define OH Budget.
It shows the expected cost of all production costs other than DM and DL.
Calculate Budgeted Costs of goods sold.
DM used + DL used + OH + Beg finished goods- Ending Finished Goods
Calculate Net Income
Sales - Cost of Goods Sold - Selling and admin- Interest Expense - Income taxes
What are the 3 financial budgets?
- Cash budget
- Budgeted balance sheet
- Budget for capital expenditures.
Define cash budget
A summary of planned cash receipts and cash payments
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