XI.+Module+6000+Vocabulary

=XI. Module 6000 Vocabulary ldm=


 * I. Budgeting **


 * 1. Budget –** an extremely important planning tool used to make quantitative plans (both physical and financial) for the future. Budgets contain estimates of costs, revenues, and resources which are used in creating action plans to meet the strategic objectives of an organization during a specified time period.


 * 2. Control** – monitoring budgets carefully to ensure that actual performance is in line with expected performance. If actual performance begins to drop below expected performance, steps are taken immediately to try to remedy the situation.


 * II. The Master Budget and The Operating Budget **


 * 1. Budget committee** – a group of key people, usually upper management, who are responsible for all matters that arise in relation to the budget. This committee assists in budget preparation, reviews the budget, makes policies regarding the budget, approves the final budget, makes sure the budget matches the company’s strategic objectives, and monitors the performance of the organization to make sure it is in line with the budget.


 * 2. Budget director** – the person in an organization who is responsible for overseeing the budgeting process. This person is usually a controller or works directly under the controller and also works very closely with the budget committee.


 * 3. Master budget** –all of the individual department and activity budgets within an organization make up the master budget. Master budget can be divided into two sections: operating budgets and financial budgets.


 * 4. Operating budgets** – projections for all of the income generating activities within an organization, namely sales, production, and finished goods inventories. Operating budgets generally consist of several sub-budgets which can be pulled together to come up with a budgeted income statement.


 * 5. Financial budgets** – projections for all of the cash inflows and outflows in an organization. Financial budgets are also concerned with financial position and provide organizations with a budgeted balance sheet.


 * 6. Continuous (rolling) budget** – a budgeting plan that forces management to plan ahead by adding an additional month in the future every time a budgeted month passes. This enables companies to continuously look ahead and always have a 12 month budget on hand.


 * 7. Sales budget** – the projected number of sales for a product or service in the future. Sales projections are often based on historical information. The sales budget must be complete before any other budget can be created.


 * 8. Production budget** – the number of units that must be produced in order to satisfy the projected number of sales and the ending inventory requirements


 * 9. Direct materials purchases budget** – reveals the amount of raw material that needs to be purchased in order to satisfy the production budget and maintain adequate inventory.


 * 10. Direct labor budget** – estimates the amount of direct labor hours and direct labor costs needed to fulfill the budgeted production needs.


 * 11. Overhead budget** – shows the amount of overhead costs, both fixed and variable, that are required in manufacturing a product. Overhead costs may include rent for office space, utilities, employee salaries, etc.


 * 12. Ending finished goods inventory budget** – uses information from the production, direct materials purchases, direct labor, and overhead budgets to come up with a unit cost per item. This number is necessary to calculate the cost of goods sold and the carrying costs of unsold units which is needed for the balance sheet.


 * 13. Cost of goods sold**- calculates what it will cost to manufacture the number units that are expected to be sold.


 * 14. Marketing expense budget** – budget for costs associated with selling and distribution activities. Marketing expenses can be broken down into fixed and variable expenses. Marketing expenses may include sales commissions, distribution materials (advertising), salaries of marketing staff, depreciation of equipment, etc.


 * 15. Research and Development expense budget –** money budgeted to be devoted to a company’s research and development department


 * 16. Administrative expense budget** – financial allocations that are devoted to the day-to-day operations of an organization.


 * 17. Budgeted Income Statement** – provides an estimate of operating income.


 * III. Flexible Budgets and Performance Analysis **


 * 1. Effectiveness** – when the objectives outlined in the static budget are either met or exceeded.


 * 2. Efficiency** – when a company operates in the best manner possible. Consumption of resources is not wasted.


 * 3. Flexible budget** – a financial plan designed to change when the needs of the company change. It provides expected costs at several different levels of activity along with the budgeted costs for the actual level of activity.


 * 4. Flexible budget variances** – The difference between budgeted costs for the actual activity level and the actual costs for that same level of activity.


 * 5. Static budget** - a budget created based on a single level of activity, usually derived from last year’s numbers.


 * 6. Variable budget** – Due to budget changes caused by changes in variable costs, a flexible budget is sometimes called a variable budget.


 * 7. Volume variances** – the difference between the flexible budget and the static budget that are caused by differences in volume.


 * IV. The Financial Budget **


 * 1. Capital expenditures budget** - a detailed financial plan for acquiring capital assets over a period of time.


 * 2. Cash budget** – detailed financial plan which summarizes all estimated cash inflows and cash outflows over a stated period of time.


 * 3. Budgeted balance sheet** – details the expected financial events and financial position of the company for the upcoming year.


 * 4. Incremental approach** – a method of creating budgets which uses last year’s numbers, adjusted for inflation and inefficiencies from the previous year, to create the budget for the current year.


 * 5. Static budget** – a budget created based on a single level of activity, usually derived from last year’s numbers.


 * 6. Zero-base budgeting** – a method of creating budgets in which all expenditures must be justified each year. Previous year’s budgets are not considered as a starting base for creating the budget.


 * V. Cash Flow **


 * 1. Cash budget** – detailed financial plan which summarizes all estimated cash inflows and cash outflows over a stated period of time.


 * 2. Total cash available** – first section of the cash budget which consists of the beginning cash balance and the expected cash receipts.


 * 3. Cash disbursements** – section of the cash budget which “lists all planned cash outlays for the period except for interest payments on short term loans.”


 * 4. Cash excess or deficiency** – section of the cash budget which states how much cash is needed and how much cash is available.


 * 5. Financing** – section of the cash budget detailing a company’s debt and payments that have been made toward those debts.

** VI. Activity Based Budgeting **

**1. Feature costing** – focuses on understanding what activities or services within a company cause costs to vary. Costs are then assigned based on these findings.

** VII. Behavioral Dimension of Budgeting **


 * 1. Budgetary slack** - padding the budget by underestimating revenue or overestimating costs in an effort to make the budget easier to achieve.


 * 2. Controllable costs** – costs that the manager has some control over.


 * 3. Dysfunctional Behavior** – when individuals in an organization behave in a manner that is not in line with the goals of the organization.


 * 4. Goal Congruence** – when the organization and each individual manager have the same goals and strive to achieve them.


 * 5. Incentives** – a motivational tool that may use monetary or nonmonetary devices in an effort to encourage employees to work towards the goals of the organization.


 * 6. Myopic behavior** – when so much emphasis is put on the current budget that the long-term effects to the company are not considered.


 * 7. Participative budgeting** – allowing managers to take part in establishing budgets.


 * 8. Pseudoparticipation** – when upper management creates the budget with no input from lower-level managers but requests formal acceptance of the budget from those managers.

**References:**

1. Accounting-Dictionary.com. (2011). Retrieved June 29, 2011 from [|http://www.accoutning-dictionary.com]. 2. Accounting for Management. (2011). Retrieved June 29, 2011 from []. 3. Hansen, D.R., & Mowen, M. M. (2011). //Cornerstones of Cost Accounting.// Mason, OH: South-Western, Cengage Learning. 4. Web Finance, Inc. (2011). Retrieved June 29, 2011 from [|www.businessdictionary.com].