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FMA
Financial and Managerial Accounting Unit 4
| Term | Definition |
|---|---|
| What key aspects does a budget help determine? | Product quantities to produce Inventory levels Cash flow needs Staffing requirements |
| Who requires budgets to allocate resources effectively? | All entities, including for-profit companies, governments, and nonprofits. |
| How does the federal budget impact citizens? | It affects tax obligations for citizens. |
| What are the main sources of revenue in the federal budget? | Individual Income Tax Payroll Taxes Corporate Taxes |
| What are the types of expenditures in the federal budget? | Discretionary: Spending determined by Congress (e.g., Defense, Education) Mandatory: Required spending (e.g., Social Security, Medicare) Interest on Debt: Obligatory payments on federal debt |
| What was the expenditure breakdown | Discretionary Mandatory Interest on Debt |
| What are the benefits of budgeting? | A budget is a structured plan for acquiring and using resources. Effective budgeting ensures expenditures do not exceed revenues. It is crucial for business success and can influence employee compensation. |
| How is performance evaluated in relation to budgeting? | Actual results are compared to budgets to assess performance, aiding in managerial evaluations and future improvements. |
| What is the conclusion regarding budgeting in business? | Successful budgeting is essential for effective business management, resource allocation, and overall profitability. |
| What is the main purpose of a master budget? | A master budget is a comprehensive financial plan that guides company operations and allows for adjustments based on actual performance. |
| How does the budgeting process begin? | The budgeting process begins with estimating revenues and product sales, followed by determining production levels and associated costs. |
| Who prepares the sales budget? | The sales budget is prepared by the sales and marketing department. |
| Why are accurate sales estimates crucial in the budgeting process? | Accurate sales estimates are crucial as they influence all subsequent budgets. |
| What are the key budget categories for manufacturers and retailers? | For manufacturers: production and product cost budgets. For retailers: inventory purchase budgets. |
| What types of budgets do all businesses need? | udgets for administrative, sales, marketing, and IT expenses, all impacting overall profitability. |
| What is the master budget? | The master budget is an integrated set of detailed budgets outlining operating and financing plans for a specific period, usually one year. |
| What does the budgeting process include? | It includes starting with the sales budget, creating a production budget, developing budgets for direct materials, direct labor, manufacturing overhead, selling/administrative expenses, and finalizing cash budgets and pro forma financial statements. |
| What key decisions must management make in a manufacturing firm? | Management must make decisions regarding scheduling, pricing, borrowing, investing, and cost control. |
| How does Washington Company break down its budget? | Washington Company breaks down its annual budget into quarterly segments to better understand hiring needs and cash flow. |
| What is the foundation of the master budget? | The sales budget is the foundation of the master budget, influencing all other budgets. |
| What makes sales forecasting challenging? | Sales forecasting is challenging due to uncontrollable external factors (e.g., economic conditions, competition) and controllable internal factors (e.g., pricing, quality). |
| What does the production budget determine? | The production budget determines the number of units to be produced based on projected sales and inventory levels. |
| What does the sales forecast in the master budgeting process begin with? | The sales forecast begins with a forecast of sales. |
| What expenses are included in the sales and administrative expense budget? | The sales and administrative expense budget includes all expenses besides production-related expenses. |
| What manufacturing costs are included in the manufacturing overhead cost budget? | The manufacturing overhead cost budget includes both fixed and variable manufacturing overhead costs. |
| What budget does the production budget supply information for? | The production budget supplies the information required for the direct materials budget. |
| The master budgeting process begins with which forecast? | A forecast of sales |
| The sales and administrative expense budget includes which expenses? | All expenses besides production-related expenses |
| The manufacturing overhead cost budget includes which manufacturing costs? | Both fixed and variable manufacturing overhead costs |
| The production budget supplies the information required for which other budget in the master budgeting process? | Direct materials budget |
| What is the purpose of performance measures in responsibility accounting? | Managers are evaluated using metrics based on factors they can control. |
| What is Responsibility Accounting? | It holds managers accountable for controllable costs, revenues, or assets within their areas of responsibility. |
| What are organizational segments? | They are subunits of a company (e.g., divisions or subsidiaries) with varying levels of autonomy and responsibility. |
| What is an example of a company with multiple segments? | IMC includes Acme Computer, Edison Automobile, and Jennifer Cosmetics, each with different responsibility levels. |
| What types of responsibility centers are there? | Cost Centers, Profit Centers, and Investment Centers. |
| What does a Cost Center focus on? | Managing costs only, such as a department focused on production costs. |
| What does a Profit Center focus on? | Managing both costs and revenues, such as a regional division responsible for both sales and expenses. |
| What does an Investment Center focus on? | Managing costs, revenues, and assets, such as a multinational subsidiary. |
| What is a Segment Margin Statement used for? | It evaluates profit centers by comparing revenues and costs to allocate resources effectively. |
| How are managers evaluated in responsibility accounting? | Managers are evaluated on direct (controllable) costs, not indirect (non-controllable) costs. |
| What is the Segment Margin Formula? | Segment Margin = Revenue − Variable Costs − Fixed Costs. |
| What are example types of Profit and Cost Centers? | A hospital comparing patient revenues to operating costs, or a marketing department comparing sales budgets to costs. |
| What is the purpose of Exception Reports in responsibility accounting? | To highlight performance issues that deviate from expectations and focus management attention on critical problems. |
| Why are Exception Reports effective? | They help managers prioritize and address significant deviations, allowing for efficient resource use. |
| What are the three types of Responsibility Centers and their focus? | Cost Centers focus on costs, Profit Centers focus on costs and revenues, and Investment Centers manage costs, revenues, and assets. |
| What is the key takeaway from Segment Margin in Profit Centers? | Segment Margin evaluates a manager’s ability to manage both revenue and cost effectively. |
| What is the Contribution Margin? | The difference between sales revenue and variable costs, showing the amount available to cover fixed costs. |
| What is the Segment Margin formula in a Profit Center? | Segment Margin = Contribution Margin − Controllable Fixed Costs. |
| What is a key consideration when evaluating a manager's performance with Segment Margin? | Only include controllable costs, as managers should not be evaluated based on uncontrollable costs. |
| What is the formula for evaluating operating profit and profitability? | Operating Profit = Segment Margin − Fixed Costs, and profitability ratios like Segment Margin Ratios help assess performance. |
| Why should managers only be evaluated on controllable costs? | To ensure fair evaluations, focusing on what managers can influence rather than external factors beyond their control. |
| Segment managers should be evaluated on which items included in a budget? | Only the items they can control or influence |
| What is the segment margin? | The difference between segment revenue and direct segment costs |
| Which items does a manager have control over in a cost center? | Costs only |
| What is the concept behind responsibility accounting in management accounting? | A manager should be evaluated only on factors he or she can directly control. |
| What is the first thing an accountant should do to develop a master budget? | Prepare a sales budget |
| What is the third factor required to prepare a production budget? | Projected sales volume |
| How is a cost variance computed for a corporate budget? | A cost variance is the difference between the actual cost and the budgeted cost. |
| What factors should the production supervisor consider in assembling her production budget? | Projected sales, desired ending inventory, and amount of beginning inventory |
| What is the correct sequence of budgets in a manufacturing business? | Sales, production, direct labor then cash flow |
| What is one important factor to consider when preparing a production budget? | Amount of beginning inventory |
| When can management determine the amount of direct materials, direct labor, and manufacturing overhead needed during the period? | Only after production quantities are known |
| What problem can occur if inventories are too high? | Excessive storage costs |
| In which budget should the depreciation of administrative office buildings be included? | Selling and administrative expense budget |
| What is a cost variance? | The amount by which the actual cost differs from the budgeted cost |
| What label is given to a business unit in which the manager is responsible for costs and revenues only? | Profit center |
Created by:
heavenlypure
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