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Chapter 7 Budgeting - Coggle Diagram
Chapter 7 Budgeting
7.3 Prepare Financial Budgets
The financial budgets include the capital asset budget and the cash budget. The cash collections schedule
and cash payments schedule are computed and combined with the other budgets to develop the cash
budget.
Information from the other budgets and the budgeted income statement are used to develop the
budgeted balance sheet.
7.1 Describe How and Why Managers Use Budgets
A good budgeting system assists management in reaching their goals through the planning and control
of cash inflows through revenue and financing and outflows through payment and expenses.
There are various budgeting strategies including bottom-up, top-down, and zero-based budgeting.
A static budget is prepared at one level of activity, while a flexible budget allows the variable expenses to
be adjusted for various levels of activity.
A master budget includes the subcategories of operating budgets and financial budgets.A master budget is developed at the estimated level of activity.
7.5 Explain How Budgets Are Used to Evaluate Goals
Management’s evaluations of the actual results versus the estimated budgetary results help plan for the
future.
Favorable variances occur when sales are higher or expenses are lower than budgeted.
Unfavorable variances occur when sales are lower or expenses are higher than budgeted.
7.2 Prepare Operating Budgets
The sales budget is the first budget developed, and the estimated sales in turn guide the production
budget.
The production budget shows the quantity of goods produced for each time period and leads to computing when and how much direct material needs to be ordered, when and how much labor needs to
be scheduled, and when and how much manufacturing overhead needs to be planned.
The sales and administrative budget plans for the nonmanufacturing expenses.
All operating budgets combine to develop the budgeted income statement.
7.4 Prepare Flexible Budgets
A master budget and related budgets are prepared as static budgets for the estimated level of activity.
A flexible budget adjusts the budgets for various levels of activity and allows for the actual results to be
evaluated at the actual volume of activity.