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Chapter08 Solutions-Hansen6e

Chapter08 Solutions-Hansen6e - CHAPTER 8 BUDGETING FOR...

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CHAPTER 8 BUDGETING FOR PLANNING AND CONTROL QUESTIONS FOR WRITING AND DISCUSSION 1. Budgets are the quantitative expressions of plans. Budgets are used to translate the goals and strategies of an organization into operational terms. 2. Control is the process of setting standards, receiving feedback on actual performance, and taking corrective action whenever actu- al performance deviates from planned per- formance. Budgets are the standards, and they are compared with actual costs and revenues to provide feedback. 3. Budgeting forces managers to plan, provides resource information for decision making, sets benchmarks for control and evaluation, and improves the functions of communication and coordination. 4. The master budget is the collection of all individual area and activity budgets. Oper- ating budgets are concerned with the in- come-generating activities of a firm. Finan- cial budgets are concerned with the inflows and outflows of cash and with planned cap- ital expenditures. 5. The sales forecast is a critical input for building the sales budget. It, however, is not necessarily equivalent to the sales budget. Upon receiving the sales forecast, management may decide that the firm can do better or needs to do better than the forecast is indicating. Consequently, ac- tions may be taken to increase the sales potential for the coming year (e.g., increas- ing advertising). This adjustment then be- comes the sales budget. 6. Yes. All budgets essentially are founded on the sales budget. The production budget depends on the level of planned sales. The manufacturing budgets, in turn, depend on the production budget. The same is true for the financial budgets since sales is a critic- al input for budgets in that category. 7. If the vice president of sales is a pessimist- ic individual, one might expect that she or he would underestimate sales for the com- ing year. In your role as head of the budget process, you might increase the budgeted sales figure to take out the individual bias. 8. If the factory controller is a particularly op- timistic individual, it is possible that the costs for direct materials, direct labor, and overhead could be underestimated. For ex- ample, an optimistic person might assume that everything will go well, e.g., that there will be no problems in obtaining an ad- equate supply of materials at the lowest possible price. As head of the budget pro- cess, you might allow for somewhat higher costs to more accurately reflect reality. 9. The learning curve is the relationship between unit costs of production and in- creasing number of units. As time goes on, the number of units produced in a time period will increase and the cost per unit will decrease. The budgets affected will be the direct materials purchases budget, the direct labor budget, and the overhead budget.
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