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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.

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

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Budgeting, Variance Analysis, and Performance Evaluations

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**********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

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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

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

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Cost Accounting - Flexible Budgets

Question I You are preparing a short presentation for a group who wants learn performance reporting issues. One question that was raised during the discussion is about measuring variances when the actual output (or activity) does not match with the budgeted output (or activity). How will you explain to the group that an appro

Capital Investment Evaluation

Select one of the capital investment evaluation methods described in Chapter 10 of your text. Fully explain the capital evaluation method's strengths and weaknesses. Take a position and defend the use of your selected method. Be sure to use at least two scholarly sources to support your position. (Problem 10-41) Grosvenor I

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Budgeting and Manufacturing Variances

Please see attached for full question and data. Question #1 Evaluate the following statements concerning variance analysis. Be sure to provide specific examples to justify your evaluations. a) When evaluating variances, it is best for managers and others to consider one variance at a time rather than groups of variances t

CVP in a Multi-Product Environment

The following is budgeted information for Connor Corporation: Product XYZ Product ABC Annual production & sales 25,000 15,000 Projected selling price

Problem 19-11

I have completed the assigned problem, but I am not sure of my solution.

Scheduling and Budgeting

Determine the tools that would work best for developing a schedule and budget. Simple methods for monitoring and controlling the schedule and budget. Identify and discuss findings from at least 4 separate articles concerning tools that are going to be used in developing a schedule and budget. Identify and discuss fin

Variance for Total Revenue and Variable Expenses

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ROI for Apple

Financial information for a recent year for Apples, Inc. is: Sales $40,000,000 Less: Cost of goods sold 25,000,000 Selling and administrative expenses 5,000,000 Interest expense 1,000,000 Income before taxes 9,000,000 Less: income taxes 3,150,000 Net income 5,850,000 Total assets