196. A _________________ is a formal written statement of management’s plans expressed in financial terms.
197. A budget is a primary means of ________________ agreed upon objectives throughout the business organization.
198. Effective budgeting is dependent on an _________________________ in which authority and responsibility are clearly defined.
199. The budget should have the support of _________________ and should be an important basis for _________________________ by comparing actual results to expected results.
200. Many companies use ____________________________ budgets by dropping the month just ending and adding a future month.
201. A __________________ is responsible for coordinating the preparation of the budget in many companies.
202. A major difference between the annual budget and long-range planning is the ____________________ over which the data pertain.
203. The ____________________ is the starting point in preparing the master budget.
204. The formula for developing a production budget is ___________________ plus ______________________ minus _______________________.
205. The ________________ is a set of interrelated budgets that constitutes a plan of action for a specified period of time.
206. Three major sections of a cash budget are (1) ___________________, (2) ____________________, and (3) ______________________.
207. The two major differences between the master budgets of a merchandiser and a manufacturer are that the merchandiser will have a ______________________ budget and will not have __________________ budgets.
208. Match the items below by entering the appropriate code letter in the space provided.
A. Budget F. Production budget
B. Financial budgets G. Cash budget
C. Budget committee H. Long-range planning
D. Master budget I. Direct materials budget
E. Sales forecast J. Sales budget
____ 1. A selection of strategies to achieve long-term goals.
____ 2. An estimate of expected sales for the budget period.
____ 3. Budgets that indicate the cash resources needed for expected operations and planned capital expenditures.
____ 4. The projection of potential sales for the industry and the company’s expected share of such sales.
____ 5. Management’s plans expressed in financial terms for a specified future time period.
____ 6. A projection of anticipated cash flows.
Matching 208 (Cont.)
____ 7. A group responsible for coordinating the preparation of the budget.
____ 8. A projection of production requirements to meet expected sales.
____ 9. A set of interrelated budgets that constitute a plan of action for a specified time period.
____ 10. An estimate of the quantity and cost of direct materials to be purchased.
SHORT-ANSWER ESSAY QUESTIONS
S-A E 209
(a) What is a budget?
(b) How does a budget contribute to good management?
S-A E 210
Budgeting can be an important management tool if implemented properly. Identify several positive results when budgets are used properly. Since budgets affect people, identify several negative aspects if budgets are not implemented properly.
S-A E 211
Budgeting and long-range planning are both important aids to management in achieving a company’s goals and objectives. Briefly distinguish between budgeting and long-range planning and indicate how they help managers perform their functions.
S-A E 212
What is participative budgeting? What are its potential benefits? What are its potential shortcomings?
S-A E 213 (Ethics)
Ashley Finn is a new production manager. After a great deal of effort, including considerable market research, she completes her budget and submits it to her boss, Keith Payne. Without even looking at it, he asks her what her “fudge factor” was, and which items contained the most slack. Ashley, very surprised, responds that she doesn’t use any “fudge factor,” and that all her figures are honest. Mr. Payne counters by asking her how she would respond if she had to cut about 20% from her budget, as it is. He tells her that most budgets are trimmed in committee, and she had better be ready. He returns the budget to her, and tells her to come back with something reasonable.
1. Is it ethical to build slack into a budget? Explain.
2. Was it ethical for Mr. Payne to refuse to accept a budget without slack? Briefly explain.
S-A E 214 (Communication)
At Boulder Industries, budgets are the responsibility of everyone. Each department collaborates in determining its expected needs, and sales personnel determine the likely sales volume. Bart Gray, one of the production managers, believes in building plenty of slack into everything, including his estimates of ending inventory of work in process.
You are the accounting manager. Write a memo to Mr. Gray. Explain why the ending inventory figure should be extremely accurate, with as little slack as possible.