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Cost Accounting Ch. 6 Solution Essay

3856 words - 16 pages

CHAPTER 6
MASTER BUDGET AND RESPONSIBILITY ACCOUNTING
6-1​The budgeting cycle includes the following elements:
a.​Planning the performance of the company as a whole as well as planning the performance of its subunits. Management agrees on what is expected.
b.​Providing a frame of reference, a set of specific expectations against which actual results can be compared.
c.​Investigating variations from plans. If necessary, corrective action follows investigation.
d.​Planning again, in light of feedback and changed conditions.

6-2​The master budget expresses management’s operating and financial plans for a specified period (usually a fiscal year) and includes a set of budgeted financial ...view middle of the document...

• Coordination. Production could ensure that output is sufficient to meet, for example, high seasonal demand in the summer.

6-6​In many organizations, budgets impel managers to plan. Without budgets, managers drift from crisis to crisis. Research also shows that budgets can motivate managers to meet targets and improve their performance. Thus, many top managers believe that budgets meet the cost-benefit test.

6-7​A rolling budget, also called a continuous budget, is a budget or plan that is always available for a specified future period, by continually adding a period (month, quarter, or year) to the period that just ended. A four-quarter rolling budget for 2007 is superseded by a four-quarter rolling budget for April 2007 to March 2008, and so on.

6-8 The steps in preparing an operating budget are as follows:
1. Prepare the revenues budget
2. Prepare the production budget (in units)
3. Prepare the direct material usage budget and direct material purchases budget
4. Prepare the direct manufacturing labor budget
5. Prepare the manufacturing overhead budget
6. Prepare the ending inventories budget
7. Prepare the cost of goods sold budget
8. Prepare the nonmanufacturing costs budget
9. Prepare the budgeted income statement

6-9​The sales forecast is typically the cornerstone for budgeting, because production (and, hence, costs) and inventory levels generally depend on the forecasted level of sales.

6-10​Sensitivity analysis adds an extra dimension to budgeting. It enables managers to examine how budgeted amounts change with changes in the underlying assumptions. This assists managers in monitoring those assumptions that are most critical to a company in attaining its budget and allows them to make timely adjustments to plans when appropriate.

6-11 Kaizen budgeting explicitly incorporates continuous improvement anticipated during the budget period into the budget numbers.

6-12 Nonoutput-based cost drivers can be incorporated into budgeting by the use of activity-based budgeting (ABB). ABB focuses on the budgeted cost of activities necessary to produce and sell products and services. Nonoutput-based cost drivers, such as the number of part numbers, number of batches, and number of new products can be used with ABB.

6-13​The choice of the type of responsibility center determines what the manager is accountable for and thereby affects the manager’s behavior. For example, if a revenue center is chosen, the manager will focus on revenues, not on costs or investments. The choice of a responsibility center type guides the variables to be included in the budgeting exercise.

6-14​Budgeting in multinational companies may involve budgeting in several different foreign currencies. Further, management accountants must translate operating performance into a single currency for reporting to shareholders, by budgeting for exchange rates. Managers and accountants must understand the factors that impact exchange rates,...

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