COST MANAGEMENT – PART 10 The opportunity cost of not taking advantage of

The budgeted (pro forma) details expected net early-payment discounts on accounts payable is

income for an upcoming period. estimated as ______.

Income [discount%÷(1 - discount%] × (365÷no. of extra

Statement days allowed for payment if the discount is not

Based on past experience, gross sales taken)

revenues are 80% cash + bank credit card Capstone, Inc. expects to have $50,000 of cash

sales, and 20% credit sales (on open account). on hand on March 1. Operating cash inflows are

On average, 60% of credit sales are collected in expected to be $140,000 and operating cash

the month of sale, 37% are collected in the outflows are expected to be $97,000. The

month following the sale and the balance are company expects to spend $20,000 on a new

uncollectible. Given gross sales of $100 in piece of equipment and repay $10,000 of

January, $120 in February and $150 in March, outstanding debt and $100 of interest. Ending

total estimated cash receipts in February equals cash balance is expected to be ______.

______. Reason:

Reason: $50,000 + $140,000 - $97,000 - $20,000 -

(80% × $120) + [37% × (20% × $100)] + [60% × $10,000 - $100 = $62,900

(20% × $120)] = $96.00 + $7.40 + $14.40= Which of the following procedures can be used

$117.80 in Excel to deal with uncertainty in terms of the

The budget that summarizes changes to the budget-preparation process?

cash account for a given period is the ______. Scenario analysis

Cash budget Sensitivity analysis

The budgeted balance sheet ______. What-if analysis

includes the effects of all operations and cash If the results shown on the budgeted (pro

flows during the budget period forma) fall short of the prespecified goal,

is usually the last step in the budget preparation management can investigate actions to improve

cycle results.

starts with the expected financial position at the Income statement

beginning of the budget period The last step in a budget-preparation cycle is

usually to prepare the ______. interrelationships among input variables

pro forma balance sheet Answering the question "What would be the

Examining the effect of a change in one or more impact on the production budget of a 20%

budgetary input items (e.g., selling price per reduction in targeted end-of-month inventory?"

unit) on a budget of interest (e.g., the sales is an example of ______ analysis.

budget) is ______. what-if

what-if analysis Budgeting for service firms ______.

Spreadsheet software can be used to deal with includes personnel planning as a focal point

uncertainty associated with budget-preparation consists of an integrated set of plans for an

by performing what-if analysis, analysis, upcoming period

and analysis. is conceptually similar to budgeting for

Scenario manufacturing or merchandising firms

Sensitivity A tool used by budget planners to determine

the
The managerial tool used to estimate the extent
extent to which a change in the forecasted
to which a change in the forecasted value of
value
one
of one or more budgetary inputs affects
or more budgetary inputs affects individual
individual budgets and the set of pro forma
budgets is ______ analysis.
financial statements produced as part of the
Sensitivity
master budgeting process is called
The ability to isolate risks associated with
Sensitivity
particular components of operations and to
Analysis
develop contingency plans for dealing with
A significant limitation of conventional zero-
those risks is one of the primary advantages of
base
conducting analysis.
budgeting (ZBB) is ______.
Sensitivity
the time and effort it requires each budget
Scenario analysis is characterized by ______. period

the use of a small number of realistic A primary advantage of using sensitivity

combinations of planning-model inputs analysis in conjunction with budgeting is

the ability to capture/model the effects of ______.

the ability to develop contingency plans activity-based

Scenario analysis ______. Traditional budgeting and activity-based

presents an idea of how good or bad things budgeting are conceptually ______.

might be in terms of budgeted performance very different

can be enhanced by assigning probabilities to Activity-based costs are estimated for products

each scenario and services produced (i.e., the organization's

may benefit from the use of a cross-functional outputs) in a time-driven activity-based

team budgeting (TDABB) system through the use of

Which of the following segregates costs ______.

required for the budgeted output into time equations

homogeneous activity cost pools? To balance costs and benefits, zero-based

Activity-based budgeting (ABB) budgeting (ZBB) ______.

True or false: Budgeting for service firms is can be implemented across organizational

similar to budgeting for manufacturing and subunits on a rotating basis

merchandising firms. Most organizations today are particularly

T interested in budgeting for ______.

The process that requires in-depth reviews of Labor

activities and functions prior to each budget Which one of the following is not a

period is ______ budgeting. characteristic of traditional budgeting?

zero-base Focuses on identifying value-added vs.

nonvalue-added activities
A primary advantage of activity-based
The difference between the total cost of
budgeting (ABB) and time-driven activity-based
resources supplied and the cost of resources
budgeting (TDABB) is the ______.
used equals the cost of
ability to better manage an organization's
Idle
human capital (labor supply)
Capacity
Identification of value-added versus non-
valueadded activities is one of the focuses of The approach to budgeting where activity costs
______
are estimated based on two factors (cost of
budgeting.
resources supplied, and amount of resource
capacity supplied, measured in time) for each

department or business process is ______

budgeting.

time-driven activity-based

The most appropriate treatment of capacity

costs is to assign the costs based on the level in

the organization where the decision was made

to acquire the capacity in question.

Idle

The use of planned capacity to establish

costdriver rates under both ABC and TDABC

systems allows management to better estimate

the ______ for each resource supplied.

cost of unused capacity

The approach to budgeting the incorporates

continuous-improvement expectations in the

budget is called budgeting.