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Managerial Accounting Test 2


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Advantages of Budgeting
1. Forces managers to plan
2. Improves decision making
3. Standard for performance evaluation
4. Better communication and coordination
Master Budget
financial plan for the organization as a whole
Continuous Budget
moving 12 month budget
Operating Budget
Describe the income generating activities of a firm: sales, production, finished goods inventory; prepared first
Financial Budgets
Detail the cash inflows and outflows and overall financial position
Preparing the Operating Budget
(S, P, DM, DL, OH, S&A, EI, COGS)
1. Sales
2. Production
3. Direct materials
4. Direct labor
5. Overhead
6. Selling and administrative
7. Ending inventory
Sales Budget
Units x selling price = budgeted sales
Production Budget
Units to be produced= Expected unit sales + units in ending inventory - units in beginning inventory
Direct materials purchases budget
Purchases = DM needed for production + desired DM in ending inventory - DM in beginning inventory
Direct labor budget
Units to be produced x DL time per unit = total hours needed x average wage per hour = total DL cost
Overhead budget
budgeted DL hours x variable OH rate = budgeted variable OH = budgeted fixed OH (includes depreciation) = Total OH
Ending Finished Goods Inventory Budget
Units x unit cost
Unit Cost
= DM/unit + DL/unit
Variable (DL/unit x Var. OH rate) + Fixed (DL/unit x (Budg. Fix. OH / Budg. DL hours)
COGS Budget
DM used + DL used + OH = Budg. Manufacturing Costs + Beg. Finished Goods = Goods available for sale - End finished goods = Budg COGS

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