Chapter 8
Master Budgeting
Solutions to Questions
8-1 A budget is a detailed approach keeps managers
quantitative plan for the continually focused one year
acquisition and use of ahead.
financial and other resources
over a given time period. 8-4 A master budget
Budgetary control involves represents a summary of all of
using budgets to increase the management’s plans and
likelihood that all parts of an goals for the future, and
organization are working outlines the way in which
together to achieve the goals these plans are to be
set down in the planning accomplished. The master
stage. budget is composed of a
number of smaller, specific
8-2 budgets encompassing sales,
1. Budgets encourage managers to production, raw materials,
think about and plan for the future. direct labor, manufacturing
overhead, selling and
2. Budgets communicate financial administrative expenses, and
goals throughout the organization. inventories. The master
budget usually also contains a
3. Budgets allocate resources within budgeted income statement,
the organization where they can be used budgeted balance sheet, and
most effectively. cash budget.
4. Budgets coordinate the plans and
activities of departmental managers.
8-5 The level of sales
impacts virtually every other
5. Budgets uncover potential aspect of the firm’s activities.
bottlenecks before they occur. It determines the production
budget, cash collections, cash
6. Budgets can be compared to actual disbursements, and selling
results to improve the efficiency and and administrative budget
effectiveness of operations and to that in turn determine the
evaluate and reward employees. cash budget and budgeted
income statement and
8-3 A perpetual budget is a balance sheet.
12-month budget that
continuously rolls forward one 8-6 No. Planning and control
month (or quarter) at a time are different, although
as the current month (or related, concepts. Planning
quarter) is completed. This involves developing goals and
© The McGraw-Hill Companies, Inc., 2022. All rights reserved.
Solutions Manual, Chapter 8 1
,developing budgets to imposed goals. (4) It
achieve those goals. Control, empowers lower-level
by contrast, involves the managers to take ownership
means by which management of the budget and to be
attempts to ensure that the accountable for deviations
goals set down at the from it.
planning stage are attained. Self-imposed budgets do
carry with them the risk of
8-7 Creating a “budgeting budgetary slack. The budgets
assumptions” tab simplifies prepared by lower-level
the process of determining managers should be carefully
how changes to a master reviewed to prevent too much
budget’s underlying slack.
assumptions impact all
supporting schedules and the 8-9 The direct labor budget
projected financial and other budgets can be
statements. used to forecast workforce
staffing needs. Careful
8-8 A self-imposed budget is planning can help a company
one in which persons with avoid erratic hiring and laying
responsibility over cost control off of employees.
prepare their own budgets.
This is in contrast to a budget 8-10The principal purpose of
that is imposed from above. the cash budget is NOT to see
The major advantages of a how much cash the company
self-imposed budget are: (1) It will have in the bank at the
shows respect for the opinions end of the year. Although this
of lower-level managers. (2) It is one of the purposes of the
leverages the knowledge of cash budget, the principal
lower-level managers to purpose is to provide
provide more accurate information on probable cash
estimates than those imposed needs during the budget
by top managers who have period, so that bank loans and
less intimate knowledge of other sources of financing can
day-to-day operations. (3) It be anticipated and arranged
increases the lower-level well in advance.
managers’ motivation to
achieve their own self-
© The McGraw-Hill Companies, Inc., 2012. All rights reserved.
2 Managerial Accounting, 14th Edition
,Chapter 8: Applying Excel
The completed worksheet is shown below.
© The McGraw-Hill Companies, Inc., 2022. All rights reserved.
Solutions Manual, Chapter 8 3
, © The McGraw-Hill Companies, Inc., 2022. All rights reserved.
4 Introduction to Managerial Accounting, 9th Edition
Master Budgeting
Solutions to Questions
8-1 A budget is a detailed approach keeps managers
quantitative plan for the continually focused one year
acquisition and use of ahead.
financial and other resources
over a given time period. 8-4 A master budget
Budgetary control involves represents a summary of all of
using budgets to increase the management’s plans and
likelihood that all parts of an goals for the future, and
organization are working outlines the way in which
together to achieve the goals these plans are to be
set down in the planning accomplished. The master
stage. budget is composed of a
number of smaller, specific
8-2 budgets encompassing sales,
1. Budgets encourage managers to production, raw materials,
think about and plan for the future. direct labor, manufacturing
overhead, selling and
2. Budgets communicate financial administrative expenses, and
goals throughout the organization. inventories. The master
budget usually also contains a
3. Budgets allocate resources within budgeted income statement,
the organization where they can be used budgeted balance sheet, and
most effectively. cash budget.
4. Budgets coordinate the plans and
activities of departmental managers.
8-5 The level of sales
impacts virtually every other
5. Budgets uncover potential aspect of the firm’s activities.
bottlenecks before they occur. It determines the production
budget, cash collections, cash
6. Budgets can be compared to actual disbursements, and selling
results to improve the efficiency and and administrative budget
effectiveness of operations and to that in turn determine the
evaluate and reward employees. cash budget and budgeted
income statement and
8-3 A perpetual budget is a balance sheet.
12-month budget that
continuously rolls forward one 8-6 No. Planning and control
month (or quarter) at a time are different, although
as the current month (or related, concepts. Planning
quarter) is completed. This involves developing goals and
© The McGraw-Hill Companies, Inc., 2022. All rights reserved.
Solutions Manual, Chapter 8 1
,developing budgets to imposed goals. (4) It
achieve those goals. Control, empowers lower-level
by contrast, involves the managers to take ownership
means by which management of the budget and to be
attempts to ensure that the accountable for deviations
goals set down at the from it.
planning stage are attained. Self-imposed budgets do
carry with them the risk of
8-7 Creating a “budgeting budgetary slack. The budgets
assumptions” tab simplifies prepared by lower-level
the process of determining managers should be carefully
how changes to a master reviewed to prevent too much
budget’s underlying slack.
assumptions impact all
supporting schedules and the 8-9 The direct labor budget
projected financial and other budgets can be
statements. used to forecast workforce
staffing needs. Careful
8-8 A self-imposed budget is planning can help a company
one in which persons with avoid erratic hiring and laying
responsibility over cost control off of employees.
prepare their own budgets.
This is in contrast to a budget 8-10The principal purpose of
that is imposed from above. the cash budget is NOT to see
The major advantages of a how much cash the company
self-imposed budget are: (1) It will have in the bank at the
shows respect for the opinions end of the year. Although this
of lower-level managers. (2) It is one of the purposes of the
leverages the knowledge of cash budget, the principal
lower-level managers to purpose is to provide
provide more accurate information on probable cash
estimates than those imposed needs during the budget
by top managers who have period, so that bank loans and
less intimate knowledge of other sources of financing can
day-to-day operations. (3) It be anticipated and arranged
increases the lower-level well in advance.
managers’ motivation to
achieve their own self-
© The McGraw-Hill Companies, Inc., 2012. All rights reserved.
2 Managerial Accounting, 14th Edition
,Chapter 8: Applying Excel
The completed worksheet is shown below.
© The McGraw-Hill Companies, Inc., 2022. All rights reserved.
Solutions Manual, Chapter 8 3
, © The McGraw-Hill Companies, Inc., 2022. All rights reserved.
4 Introduction to Managerial Accounting, 9th Edition
