Key Terms
Budget
Quantitative plan estimating when and how much cash or resources will be received/used.
Three core advantages
Communication, planning, and evaluation.
Process
1. Management assesses conditions (economic, competitive, technological).
Definition
Estimated assets, liabilities, and equities the company would have at year-end if performance meets expectations.
Compromise
Apply ZBB only to specific categories (like travel) that are easy to justify and link directly to goals.
Advantage
Allows management to respond to changes in estimates or actual results; always forward-looking.
Disadvantage
Requires continual updating; takes management time away from other duties.
Sub-budgets (in order of preparation)
1. Sales Budget 2.
Sub-budgets
1. Capital Asset Budget (capital expenditure budget) 2.
Formula
Units to Produce x Direct Labor Hours per Unit = Total Direct Labor Hours Total Direct Labor Hours x Labor Rate per Hour
Then
Materials to Purchase x Cost per Unit of Material = Total Materials Cost
Feeds into
The budgeted balance sheet (ending cash balance).
Purpose
Ensures the right number of workers is scheduled and that there is cash available to pay them (including potential overt
Formula for variable overhead
Direct Labor Hours x Variable Overhead Rate per Hour = Variable Overhead Cost
Fixed overhead
Same dollar amount each period regardless of production.