ACG3341 Chapter 6 (Cost Accounting & Control 1)
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1
"A budget is a plan created with the distinct understanding that resources in limited supply are to be used judiciously."
What is a budget?
"A budget is a plan created with the distinct understanding that resources in limited supply are to be used judiciously."
2
Rolling Budget
The Rolling Budget is a financial projection plan for how much you will spend ("budget"), by dropping the most recent past period and adding a new future period as time moves on. !!!(You also use the the recent past period to adjust the budget for the future periods)!!!
ex)
You come up with a monthly marketing budget for 12 months for January 2026 - December 2026. After January 2026, you realize that due to circumstances, you will need to spend more on marketing.
So, for a rolling budget, you would get rid of January 2026 from the budget, and add in January 2027 to the budget. You would also adjust the future budgets using the past information from January 2026, which in this case would be increasing spending.
ex)
You come up with a monthly marketing budget for 12 months for January 2026 - December 2026. After January 2026, you realize that due to circumstances, you will need to spend more on marketing.
So, for a rolling budget, you would get rid of January 2026 from the budget, and add in January 2027 to the budget. You would also adjust the future budgets using the past information from January 2026, which in this case would be increasing spending.
3
Zero-Based Budget
A Zero-Based Budget(ZBB) is where that when deciding where to spend your money and how much to spend, you "always start from scratch", meaning you have to justify every cost that is being spent, compared to regular budgeting which would only need to justify new costs and you just continue with the existing costs.
-Another aspect of Zero-Based budgeting is that every dollar needs to be allocated to a designated purpose.
-Another aspect of Zero-Based budgeting is that every dollar needs to be allocated to a designated purpose.
4
Imposed Budget?
Participative Budget?
Participative Budget?
Imposed Budget: A budget based on the top executives of the company
Participative Budget: A budget based on managers throughout the ogrnaizaiton who are most knowledgabke about the factors relating to the budget
Participative Budget: A budget based on managers throughout the ogrnaizaiton who are most knowledgabke about the factors relating to the budget
5
Budgetary Stacking
(or “padding the budget”) is intentionally overstating budgeted expenses or understating budgeted revenues to achieve targets more easily
6
Use it or lose it
Use it or lose it refers to spending all the funds allocated in a budget to avoid being granted fewer funds the next year
7
Master budget
The master budget is a comprehensive, organization-wide plan used to coordinate a company’s goals and objectives, and to allocate resources for the upcoming year (or operating period)
8
Organizational Structures
1. Centralization
2. Decentralization
Organizational Structures
1. Centralization
2. Decentralization
1. Centralization: decision-making authority that resides within a narrow scope at the highest levels of the firm.
2. Decentralization: is the freedom of managers at all levels to make binding decisions—without continuous interference by top management.
-"business unit": are a distinct part of a business, which in a decentralized act independently
2. Decentralization: is the freedom of managers at all levels to make binding decisions—without continuous interference by top management.
-"business unit": are a distinct part of a business, which in a decentralized act independently
9
What is a responsibility center and its 4 types?
Responsibility center : is a business unit organized according to its focus or area of control
1. Cost Center: Responsible for managing costs
2. Revenue Center: Responsible for generating revenue
3. Profit Center: Responsible for simultaneously generating revenues and maintaining expenses—the definition of earning profit.
4. Investment Center: Responsible for investments
1. Cost Center: Responsible for managing costs
2. Revenue Center: Responsible for generating revenue
3. Profit Center: Responsible for simultaneously generating revenues and maintaining expenses—the definition of earning profit.
4. Investment Center: Responsible for investments
10
Pro Forma?
Pro forma statements are hypothetical financial reports that project a company's future performance
11
budgeted revenue formula
12
What is trade credit, and credit sales?
Trade Credit: From the buyers perspective,
allowed to buy now, and pay later
Credit sales: From the seller perspective
allows the customer to buy now and pay later, putting it as an accounts receivable.
allowed to buy now, and pay later
Credit sales: From the seller perspective
allows the customer to buy now and pay later, putting it as an accounts receivable.
13
1. What is used to come up with the production budget
2. What budgets are determined from making the production budget
3. What are the account(s) that the production budget effects on the income statement and Balance sheet?
2. What budgets are determined from making the production budget
3. What are the account(s) that the production budget effects on the income statement and Balance sheet?
14
1. What is used to come up with the DM Purchases budget
2. What budgets are determined from making the DM Purchases budget
3. What are the account(s) that the DM Purchases budget effects on the income statement and Balance sheet?
2. What budgets are determined from making the DM Purchases budget
3. What are the account(s) that the DM Purchases budget effects on the income statement and Balance sheet?
15
1. Budgeted quantity of DM to be purchased Formula?
-Give the names of the totals if you split this equation up.
2. Budgeted Cost of DM to be purchased Formula?
-Give the names of the totals if you split this equation up.
2. Budgeted Cost of DM to be purchased Formula?
1a. Budgeted units to be produced x budgeted quantity of DM needed per unit = quantity of DM needed for production (aka "Total production Needs")
1b. (Budgeted units to be produced x budgeted quantity of DM needed per unit) + Target Ending Inventory Quantity = Total DM Inventory Needs
1c. (Budgeted units to be produced x budgeted quantity of DM needed per unit) + Target Ending Inventory Quantity - Beginning DM Inventory Quantity = Budgeted Units of DM to be Purchased
1b. (Budgeted units to be produced x budgeted quantity of DM needed per unit) + Target Ending Inventory Quantity = Total DM Inventory Needs
1c. (Budgeted units to be produced x budgeted quantity of DM needed per unit) + Target Ending Inventory Quantity - Beginning DM Inventory Quantity = Budgeted Units of DM to be Purchased
16
Does the RM, WIP, and FG Inventory account for both direct and indirect materials>
YES, they all account for direct and indirect materials.
17
1. What is used to come up with the DL budget
2. What budgets are determined from making the DL budget
3. What are the account(s) that the DL budget effects on the income statement and Balance sheet?
(PS: This is probably total useless, didn't get asked ANY questions on the homework or in the test about this)
2. What budgets are determined from making the DL budget
3. What are the account(s) that the DL budget effects on the income statement and Balance sheet?
(PS: This is probably total useless, didn't get asked ANY questions on the homework or in the test about this)
(PS: This is probably total useless, didn't get asked ANY questions on the homework or in the test about this)
18
1. Budgeted DL hours needed Formula?
2. Budgeted DL Costs Formula?
2. Budgeted DL Costs Formula?
19
1. Budgeted MOH Costs Formula?
2. Budgeted Variable-MOH Costs Formula?
2. Budgeted Variable-MOH Costs Formula?
20
1. What is used to come up with the MOH budget
2. What budgets are determined from making the MOH budget
3. What are the account(s) that the MOH budget effects on the income statement and Balance sheet?
(PS: This is probably total useless, didn't get asked ANY questions on the homework or in the test about this)
2. What budgets are determined from making the MOH budget
3. What are the account(s) that the MOH budget effects on the income statement and Balance sheet?
(PS: This is probably total useless, didn't get asked ANY questions on the homework or in the test about this)
(PS: This is probably total useless, didn't get asked ANY questions on the homework or in the test about this)
21
How does a realtor vs manufacturer calculate COGS?
22
1. Budgeted Cost of Goods Manufactured (COGM) Formula?
2. Budgeted Costs of DM Used Formula?
3. Budgeted Costs of Goods Sold (COGS) Formula?
1. Budgeted Cost of Goods Manufactured (COGM) Formula?
2. Budgeted Costs of DM Used Formula?
3. Budgeted Costs of Goods Sold (COGS) Formula?
ALSO, Budgeted DM USed = Beginning DM inventory + Budgeted DM purchased - Ending DM inventory
23
1. What is used to come up with the SG&A Expenses budget
2. What budgets are determined from making the SG&A Expeneses budget
3. What are the account(s) that the SG&A Expenses budget effects on the income statement and Balance sheet?
(PS: This is probably total useless, didn't get asked ANY questions on the homework or in the test about this)
2. What budgets are determined from making the SG&A Expeneses budget
3. What are the account(s) that the SG&A Expenses budget effects on the income statement and Balance sheet?
(PS: This is probably total useless, didn't get asked ANY questions on the homework or in the test about this)
(PS: This is probably total useless, didn't get asked ANY questions on the homework or in the test about this)
24
Budgeted SG&A Expenses Formula
25
Fixed Cost
Depreciation on the office & office equipment a fixed, variable or mixed cost?
Fixed Cost
26
Variable Cost
Administrative wages a fixed, variable or mixed cost?
Variable Cost
27
Utilities and repairs and maintenance on the office a fixed, variable or mixed cost?
Mixed Cost
28
Advertising, internet, telephone, travel, webhosting a fixed, variable or mixed cost?
Mixed Cost.
29
Salaries a fixed, variable or mixed cost?
Fixed Cost .
30
Consumables like coffee and paper towels, and meals and entertainment expenses a fixed, variable or mixed cost?
Mixed Costs ..
31
Sales Commission, travel, and conferences a fixed, variable or mixed cost?
Mixed Costs !
32
Property Tax on the office a a fixed, variable or mixed cost?
Fixed Costs
33
1. What is used to come up with the Non-operating Expenses budget
2. What budgets are determined from making the Non-Operating Expenses budget
3. What are the account(s) that the Non-Operating Expenses budget effects on the income statement and Balance sheet?
(PS: This is probably total useless, didn't get asked ANY questions on the homework or in the test about this)
2. What budgets are determined from making the Non-Operating Expenses budget
3. What are the account(s) that the Non-Operating Expenses budget effects on the income statement and Balance sheet?
(PS: This is probably total useless, didn't get asked ANY questions on the homework or in the test about this)
(PS: This is probably total useless, didn't get asked ANY questions on the homework or in the test about this)
34
1. Budgeted Operating Income Formula
2. Budgeted Net Income Formula
2. Budgeted Net Income Formula
35
*Used to make the Budgeted Income Statement
Operating Budget?
*Used to make the Budgeted Income Statement
36
Financing Budget?
*Used to make the Budgeted Balance Sheet
(According to AI, also makes the Cash Flow Statement)
(According to AI, also makes the Cash Flow Statement)
37
Cash receipts represent the sum of cash sales and cash collections from A/R.
Cash Receipts
Cash receipts represent the sum of cash sales and cash collections from A/R.
38
Cash Sales
"Cash sales, as the term implies, are made for cash on the spot, like pesky washers and dryers at a laundromat that only take coins."
39
Cash Collections
When a customer pays their accounts receivable balances.
40
1a. Composition of Cash Sales
1b. Composition of Credit Sales
(T-Accounts)
1b. Composition of Credit Sales
(T-Accounts)
41
2a. This is the way GAAP makes you do it. This is an estimate (at the end of the period), of how many will be uncollectible.
2b. NOT ALLOWED BY GAAP, so only for private companies. (Its not an estimate, you only do it when its determined the customer won't pay)
2a. Credit Sales that go uncollectable for a public company
2b. Credit Sales that go uncollectable for a private company, and collectables are known relatively quickly
(T-Accounts)
2b. Credit Sales that go uncollectable for a private company, and collectables are known relatively quickly
(T-Accounts)
2a. This is the way GAAP makes you do it. This is an estimate (at the end of the period), of how many will be uncollectible.
2b. NOT ALLOWED BY GAAP, so only for private companies. (Its not an estimate, you only do it when its determined the customer won't pay)
42
“2/10 net 30”
Must pay in 30 days, however the company will give you. 2% discount if you pay within 10 days
43
Discounts for Early payment
(T-Accounts)
(T-Accounts)
44
Budgeted Cash Receipts Formula
45
Budgeted Cash Balance Formula
46
Budgeted sales: Apr 300 units at \$40, May 350 at \$40, Jun 400 at \$42, Jul 450 at \$42. Budgeted GROSS sales for the SECOND quarter?
SECOND QUARTER (3 months per quarter)!!!!!!
-April (300 x 40) +
-May (350 x 40) +
-June (400 x 42) =
\$42,800
-April (300 x 40) +
-May (350 x 40) +
-June (400 x 42) =
\$42,800
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