ch10 - Chapter 10 Static and Flexible Budgets LEARNING...

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Chapter 10 Static and Flexible Budgets LEARNING OBJECTIVES Chapter 10 addresses the following questions: Q1 What are the relationships among budgets, long-term strategies, and short-term operating plans? Q2 What is a master budget, and how is it prepared? Q3 What are budget variances, and how are they calculated? Q4 What are the differences between static and flexible budgets? Q5 How are budgets used to monitor and motivate performance? Q6 What are other approaches to budgeting? Q7 How is the cash budget developed? (Appendix 10A) These learning questions (Q1 through Q7) are cross-referenced in the textbook to individual exercises and problems. COMPLEXITY SYMBOLS The textbook uses a coding system to identify the complexity of individual requirements in the exercises and problems. Questions Having a Single Correct Answer: No Symbol This question requires students to recall or apply knowledge as shown in the textbook. e This question requires students to extend knowledge beyond the applications shown in the textbook. Open-ended questions are coded according to the skills described in Steps for Better Thinking (Exhibit 1.10): Step 1 skills (Identifying) Step 2 skills (Exploring) Step 3 skills (Prioritizing) Step 4 skills (Envisioning)
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10-2 Cost Management QUESTIONS 10.1 The revenue budget determines the volume of units sold. This amount, less beginning inventories plus desired ending inventories determines the amount of units for the production budget. The production budget determines the amount of direct materials needed. If there are any constraints in the production process or for direct materials, these relationships could change. 10.2 An organization would like the right people to be available at the right place and at the right time. This includes having the necessary talent in marketing to produce sales, and in production to provide the product. The various staff functions should be able to perform their assigned tasks in an effective and efficient manner. The budget provides advance guidance about personnel requirements during specific time periods. 10.3 Participative Budgeting: If individuals who are affected by some aspect of the budget participate in that budget’s construction, there should be greater acceptance of the stated goals and the means to their attainment. If a manager has not had input to setting goals or to the resources required to attain them, there is a possibility that the budget may not be taken seriously as the formal financial expression of that individual's responsibility and authority. 10.4 Zero based budgeting does not take a prior period's performance and budget as given. It requires that each budget be justified by first demonstrating that the projected level of output (of goods or services) justifies the budget submitted. The projected level of output needs to be consistent with the goals of the organization. This means that under zero based budgeting, managers ignore prior period results and proceed as if they were
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This note was uploaded on 03/07/2011 for the course BUS 352 taught by Professor Ng during the Winter '10 term at Wilfred Laurier University .

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ch10 - Chapter 10 Static and Flexible Budgets LEARNING...

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