Explore BrainMass

Explore BrainMass

    Budgets

    Budgets are an important part of managers’ planning and control responsibilities. Many organizations use budgets as a tool for making resource allocation decisions for the upcoming financial period, or several periods ahead.  In this way, budgets help managers make decisions about how to allocate resources to the departments where they will be used the most efficiently, to plan for the future, to prepare for emergencies, and to identify potential bottlenecks in the organization. Budgets are also an important tool for communicating management’s financial objectives and to coordinate the different objectives of different departments. These objectives can then be used as a benchmark for an organization’s actual results and to determine areas where results were significantly different than projected.

    Most organizations have master budgets, which generally culminate in a budgeted income statement, balance sheet, and cash flow statement. As part of the master budget, a number of specific budgets are also created for activities such as sales, production, inventory purchases and finished goods inventory, direct materials and direct labor, manufacturing overhead, and SGA (selling, general and administrative expenses).

    Flexible budgets are also used to help control for overhead costs. For example, the budget variance measures the difference between the actual fixed overhead costs and the budgeted fixed overhead costs. The volume variance is the fixed portion of the predetermined overhead rate * (denominator hours – standard hours allowed).  Managers use these variances to help measure performance.  (See Standard Costing  and Measuring Performance).


    Budget: A detailed plan for the acquisition and use of financial and other resources over a specified time period.

    Continuous or Perpetual Budget: A 12-month budget that rolls forward one month as the current month is completed.

    Participative Budget (or self-imposed budget): A method of preparing budgets in which managers prepare their own budgets. These budgets are then reviewed by the manager’s supervisor and any issues are resolved by mutual agreement.

    Budget Committee: A group of key management personnel responsible for overall policy matters related to the budget program, coordinating the preparation of the budget, handling disputes related to the budget, and approving the final budget.

    Zero-Based Budget: A method of budgeting in which managers are required to justify all costs as if the programs involved were being proposed for the first time.

    Static Budget: A budget designed for only the planned level of activity.

    Flexible Budget: The basic idea of the flexible budget approach is that the budget is adjusted to show what revenues and costs should be for a specific level of activity. Flexible budgets use standard costs.

    Flexible Budget Variance: The difference between actual and flexible budget amounts for revenues and expenses.

    Static Budget Variance: The difference between actual and static budget amounts for revenues and expenses.

    Sales Volume Variance: The difference between flexible and static budget amounts for revenues and expenses.

    Activity Based Budgeting: A type of budgeting in which emphasis is placed on budgeting the costs of the activities needed to produce and market the firm’s goods and services.

    © BrainMass Inc. brainmass.com March 19, 2024, 1:06 am ad1c9bdddf

    BrainMass Solutions Available for Instant Download

    Comparing Budget Constraints in a Two Period Model

    Budget Constraints in a Two Period Model Describe how the budget constraint of a house-hold in a two-period model is affected by each of the following changes. In each case, do you think the household is better off or worst off or is the answer ambiguous? If ambiguous, what does the answer depend on? A. Period 1 income is

    The solution shows how to calculate budgeted purchases of direct materials

    Floyd Manufacturing expects to produce 2,900 units in January and 3,600 units in February. Floyd budgets $20 per unit for direct materials. Indirect materials are insignificant and not considered for budgeting purposes. The balance in the Raw Materials Inventory account (all direct materials) on January 1 is $38,650. The company

    Costing and Income Data for a Financial Strategy

    Your business has been open for a month, and you have prepared an income statement and completed a variance analysis on the data. Now you will meet with investors and a few other internal stakeholders to share your company's progress over the past month and how it has performed with respect to your cost and budget projections. T

    Explain Net Present Value (NPV) method

    Why is the use of the NPV methods preferred over other methods in deciding what projects to accept? Compare the NPV methods with others, and discuss the advantages and disadvantages of each method.

    Preparation of direct materials budget for Husky Pasta Company

    Husky Pasta Company (HPC) produces a hand-processed gourmet pasta that is made with organic flour. Five (5) kilograms of organic flour are required per batch of gourmet pasta. The organic flour costs $2.40 per kilogram. The company needs to have 30% of the following month's production needs of organic flour in ending inven

    Direct Materials Purchases Budget

    Soda Company is the largest bottler in Western Europe. The company purchases Brand 1 and Brand 2 concentrate from The Soda Company, dilutes and mixes the concentrate with carbonated water, and then fills the blended beverage into cans or plastic two-liter bottles. Assume that the estimated production for Brand 1 and Brand 2 two-

    Determining the Reasonableness of an Auto Sales Forecast

    Fiat has introduced a new car in the United States called the 500. Assume that your boss has the responsibility to forecast the sales of the 500 in the United States for the year 2017. He believes that Fiat will sell 85,000 of the 500s for 2017. Support or attack this forecast.

    Healthcare Budget Variance

    Use template attached******* Budgeting is an important activity within every healthcare organization. The particular challenges encountered, however, can vary depending on the type of organization. A state or federally funded organization, for example, will likely have a budget that is allocated to it, and it needs to follow

    HBI, Inc. Master Budget

    HBI Inc. has gathered the following budgeting information for next year and has asked you to prepare their master budget. Budgeted unit sales Quarter 1 193 Quarter 2 120 Quarter 3 164 Quarter 4 148 See the attached file for the full numbers.

    Herbal Care Corp cash receipts collections budget

    Herbal Care Corp., a distributor of herb-based sunscreens, is ready to begin its third quarter, in which peak sales occur. The company has requested a $40,000, 90-day loan from its bank to help meet cash requirements during the quarter. Since Herbal Care has experienced difficulty in paying off its loans in the past, the loan of

    Company XYZ, Fiberglass Steel Rowboat: Variances

    Company XYZ manufactures one model of fiberglass row boat. The following information relates to budgeted and actual production for XYZ company during 2015. Standard Costs for one row boat is as follows: Direct material: Fiberglass compound 6 gallons@ $24.00/gallon $144.00 Direct labor: 2 hours @$25.00/hour $ 5

    Cash Budget Control Movement

    Cash Budgets A cash budget helps a company plan and control the movement of cash into and out of the company. It is important for a company to have a good understanding of its cash needs in order to identify instances of cash idleness or shortage. In this Application, you will use the information on cash budgets outl

    Master Budget Excel Project: ABC Company

    EXCEL PROJECT INSTRUCTIONS Assume ABC Company has asked you to not only prepare their 2013 year-end Balance Sheet but to also provide pro-forma financial statements for 2014. In addition, they have asked you to evaluate their company based on the pro-forma statements with regard to ratios. They also want you to evaluate 3 proje

    Budgeting, Variance Analysis, and Performance Evaluations

    T&P Fashion Shops T&P Fashion Shops is a new chain that operates 10 stores in major malls throughout the United States. Each store manager is responsible for preparing a flexible budget for the store. T&P headquarters accumulates and analyzes the information for each store and in the aggregate. Below follows some cost esti

    Ferguson & Son Manufacturing Company's budgetary control system

    **********please detailed********* Identify the problems that appear to exist in Ferguson & Son Manufacturing Company's budgetary control system and explain how the problems are likely to reduce the effectiveness of the system. (approximately 1 page) Explain how Ferguson & Son Manufacturing Company's budgetary control

    Budgeting: Orchid Ltd

    Orchid Ltd. is a small furniture manufacturer. It was established as a family-owned business 30 years ago and prides itself on high-quality products. Most of its products are made to order as a result of direct orders from Internet-based sales. Typically the company has been profitable, operating at the top end of the market; re

    Calculating the various capital budgeting parameters

    Bongo Ltd. is considering the selection of one of two mutually exclusive projects. Both would involve purchasing machinery with an estimated useful life of 5 years. Project 1 would generate annual cash flows (receipts less payments) of £200,000; the machinery would cost £556,000 with a scrap value of £56,000. Project 2

    Static and Flexible Budgets, Variances

    Static and flexible budgets, variances, information quality The photocopying department in a community college has budgeted monthly costs at $40,000 per month plus $7 per student. Normally 800 students are enrolled. During January there were 730 students (which is within the relevant range). At the end of the month, actual fixed

    Budgeting in modern business

    How useful is traditional budgeting in today's business environment? To support your discussion, critically review evidence from the literature and illustrate your points by providing appropriate examples from the literature. Take into account: - Alternatives to traditional budgeting - The influence of organisational culture

    The Net Present Value Method

    Please solve the attached questions E12 to 4B. E12-1B Allen Corporation is considering purchasing a new delivery truck. The truck has many advantages over the company's current truck (not the least of which is that it runs). The new truck would cost $48,000. Because of the increased capacity, reduced maintenance costs, and i

    Ridley Company: Retain or Replace Equipment

    Ridley Company has a factory machine with a book value of $83,200 and a remaining useful life of 4 years. A new machine is available at a cost of $207,900. This machine will have a 4-year useful life with no salvage value. The new machine will lower annual variable manufacturing costs from $616,500 to $430,000. Prepare an ana

    Vintech Manufacturing: Buy or Make the Part

    Brief Exercise 23-4 Vintech Manufacturing incurs unit costs of $7 ($4 variable and $3 fixed) in making a subassembly part for its finished product. A supplier offers to make 17,000 of the part at $5.60 per unit. If the offer is accepted, Vintech will save all variable costs but no fixed costs. Prepare an analysis showing t

    Special Order Decision for the Harley Company

    Brief Exercise 23-3 In Harley Company it costs $28 per unit ($17 variable and $11 fixed) to make a product that normally sells for $50. A foreign wholesaler offers to buy 4,100 units at $28 each. Harley will incur special shipping costs of $2 per unit. Assuming that Harley has excess operating capacity. Indicate the net

    Calculating a company's annual budget amounts and product costs

    Stanton Company is planning to produce 2,500 units of product in 2012. Each unit requires 1.20 pounds of materials at $7.70 per pound and a half-hour of labor at $12.80 per hour. The overhead rate is 80% of direct labor. (a) Compute the budgeted amounts for 2012 for direct materials to be used, direct labor, and applied overh

    Home Depot Ratio Analysis

    Based on the attached document, perform at least two ratio analyzes for: (1) Liquidity (2) Solvency (3) Profitability Please see attachment for The Home Depot, Inc. and Subsidiaries Consolidated Balance Sheets.

    Vertical and Horizontal Analysis - Net Income

    1. The vertical analysis (common-size) percentages for Vallejo Company's sales, cost of goods sold, and expenses are listed here. Vertical Analysis 2012 2011 2010 Sales 100 % 100 % 100 % Cost of goods sold 62.7 64.2 66.1 Expenses

    Ratio Analysis, Cash Debt Coverage Ratio, FCF

    Using the data from the comparative balance sheet of Rosalez Company, perform horizontal analysis. (If amount and percentage are a decrease show the numbers as negative, e.g. -55,000, -20% or (55,000), (20%). Round percentages to 0 decimal places, e.g. 12%.)

    The differences between divisional profits

    When comparing various divisions within a company, describe what problems can arise from evaluating divisions that have different accounting methods, as described in Chapter 11 of your text. Cite three examples of accounting methods that could cause divisions' profits to differ. Your initial post should be 200-250 words. Gui

    Cost Accounting - Flexible Budgets Problems

    1. Baker's Urban Diner is a charity supported by donations that provides free meals to the homeless. The diner's budget for December was based on 2,400 meals, but the diner actually served 2,300 meals. The diner's director has provided the following cost data to use in the budget: groceries, $2.00 per meal; kitchen operations, $