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CHAPTER 6 MASTER BUDGET AND RESPONSIBILITY ACCOUNTING 6-1 The budgeting cycle includes the following elements: a. Planning the performance of the company as a whole as well as planning the performance of its subunits. Management agrees on what is expected. b. Providing a frame of reference, a set of specific expectations against which actual results can be compared. c. Investigating variations from plans. If necessary, corrective action follows investigation. d. Planning again, in light of feedback and changed conditions. 6-4 We agree that budgeted performance is a better criterion than past performance for judging managers, because inefficiencies included in past results can be detected and eliminated in budgeting. Also, future conditions may be expected to differ from the past, and these can also be factored into budgets. 6-8 The steps in preparing an operating budget are as follows: 1. Prepare the revenues budget 2. Prepare the production budget (in units) 3. Prepare the direct material usage budget and direct material purchases budget 4. Prepare the direct manufacturing labor budget 5. Prepare the manufacturing overhead budget 6. Prepare the ending inventories budget 7. Prepare the cost of goods sold budget 8. Prepare the nonmanufacturing costs budget 9. Prepare the budgeted income statement 6-10 Sensitivity analysis adds an extra dimension to budgeting. It enables managers to examine how budgeted amounts change with changes in the underlying assumptions. This assists managers in monitoring those assumptions that are most critical to a company in attaining its budget and allows them to make timely adjustments to plans when appropriate. 6-11 Kaizen budgeting explicitly incorporates continuous improvement anticipated during the budget period into the budget numbers. 6-13 The choice of the type of responsibility center determines what the manager is accountable for and thereby affects the manager’s behavior. For example, if a revenue center is chosen, the manager will focus on revenues, not on costs or investments. The choice of a responsibility center type guides the variables to be included in the budgeting exercise.
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6-20 Revenues and production budget . 1. Selling Price Units Sold Total Revenues 12-ounce bottles $0.25 4,800,000 a $1,200,000 4-gallon units 1.50 1,200,000 b 1,800,000 $3,000,000 a 400,000 × 12 months = 4,800,000 b 100,000 × 12 months = 1,200,000 2. Budgeted unit sales (12-ounce bottles) 4,800,000 Add target ending finished goods inventory 600,000 Total requirements 5,400,000 Deduct beginning finished goods inventory 900,000 Units to be produced 4,500,000 3. Beginning Budgeted Target Budgeted = + inventory sales ending inventory production = 1,200,000 + 200,000 1,300,000 = 100,000 4-gallon units 6-21 Direct material usage, unit costs, and gross margins (continuation of 6-20).
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This note was uploaded on 07/07/2009 for the course ACCT 2102 taught by Professor Unknown during the Three '08 term at Queensland.

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