Chapter 8
Master Budgeting
Solutions to Questions
8-1 A budget is a detailed quantitative plan 8-2
for the acquisition and use of financial and other 1. Budgets encourage managers to think
resources over a given time period. Budgetary about and plan for the future.
control involves using budgets to increase the 2. Budgets communicate financial goals
likelihood that all parts of an organization are throughout the organization.
working together to achieve the goals set down
in the planning stage.
© McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent
of McGraw Hill LLC.
Managerial Accounting 18th Edition, Solutions Manual, Chapter 8 525
, 3. Budgets allocate resources within the attempts to ensure that the goals set down at
organization where they can be used most the planning stage are attained.
effectively.
4. Budgets coordinate the plans and 8-7 Creating a ―budgeting assumptions‖ tab
activities of departmental managers. simplifies the process of determining how
5. Budgets uncover potential bottlenecks changes to a master budget’s underlying
before they occur. assumptions impact all supporting schedules and
6. Budgets can be compared to actual the projected financial statements.
results to improve the efficiency and
effectiveness of operations and to evaluate and 8-8 A self-imposed budget is one in which
reward employees. persons with responsibility over cost control
prepare their own budgets. This is in contrast to
8-3 A perpetual budget is a 12-month a budget that is imposed from above. The major
budget that continuously rolls forward one advantages of a self-imposed budget are: (1) It
month (or quarter) at a time as the current shows respect for the opinions of lower-level
month (or quarter) is completed. This approach managers. (2) It leverages the knowledge of
keeps managers continually focused one year lower-level managers to provide more accurate
ahead. estimates than those imposed by top managers
who have less intimate knowledge of day-to-day
8-4 A master budget represents a summary operations. (3) It increases the lower-level
of all of management’s plans and goals for the managers’ motivation to achieve their own self-
future, and outlines the way in which these imposed goals. (4) It empowers lower-level
plans are to be accomplished. The master managers to take ownership of the budget and
budget is composed of a number of smaller, to be accountable for deviations from it.
specific budgets encompassing sales, Self-imposed budgets do carry with
production, raw materials, direct labor, them the risk of budgetary slack. The budgets
manufacturing overhead, selling and prepared by lower-level managers should be
administrative expenses, and inventories. The carefully reviewed to prevent too much slack.
master budget usually also contains a budgeted
income statement, budgeted balance sheet, and 8-9 The direct labor budget and other
cash budget. budgets can be used to forecast workforce
staffing needs. Careful planning can help a
8-5 The level of sales impacts virtually every company avoid erratic hiring and laying off of
other aspect of the firm’s activities. It employees.
determines the production budget, cash
collections, cash disbursements, and selling and 8-10 The principal purpose of the cash
administrative budget that in turn determine the budget is NOT to see how much cash the
cash budget and budgeted income statement company will have in the bank at the end of the
and balance sheet. year. Although this is one of the purposes of the
cash budget, the principal purpose is to provide
8-6 No. Planning and control are different, information on probable cash needs during the
although related, concepts. Planning involves budget period, so that bank loans and other
developing goals and developing budgets to sources of financing can be anticipated and
achieve those goals. Control, by contrast, arranged well in advance.
involves the means by which management
Copyright © 2024 McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw Hill LLC.
Managerial Accounting 18th Edition, Solutions Manual, Chapter 8
,Chapter 8: Applying Excel
The completed worksheet is shown below.
Copyright © 2024 McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw Hill LLC.
Managerial Accounting 18th Edition, Solutions Manual, Chapter 8 527
, Chapter 8: Applying Excel (continued)
The completed worksheet, with formulas displayed, is shown below.
Copyright © 2024 McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw Hill LLC.
Managerial Accounting 18th Edition, Solutions Manual, Chapter 8
Master Budgeting
Solutions to Questions
8-1 A budget is a detailed quantitative plan 8-2
for the acquisition and use of financial and other 1. Budgets encourage managers to think
resources over a given time period. Budgetary about and plan for the future.
control involves using budgets to increase the 2. Budgets communicate financial goals
likelihood that all parts of an organization are throughout the organization.
working together to achieve the goals set down
in the planning stage.
© McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent
of McGraw Hill LLC.
Managerial Accounting 18th Edition, Solutions Manual, Chapter 8 525
, 3. Budgets allocate resources within the attempts to ensure that the goals set down at
organization where they can be used most the planning stage are attained.
effectively.
4. Budgets coordinate the plans and 8-7 Creating a ―budgeting assumptions‖ tab
activities of departmental managers. simplifies the process of determining how
5. Budgets uncover potential bottlenecks changes to a master budget’s underlying
before they occur. assumptions impact all supporting schedules and
6. Budgets can be compared to actual the projected financial statements.
results to improve the efficiency and
effectiveness of operations and to evaluate and 8-8 A self-imposed budget is one in which
reward employees. persons with responsibility over cost control
prepare their own budgets. This is in contrast to
8-3 A perpetual budget is a 12-month a budget that is imposed from above. The major
budget that continuously rolls forward one advantages of a self-imposed budget are: (1) It
month (or quarter) at a time as the current shows respect for the opinions of lower-level
month (or quarter) is completed. This approach managers. (2) It leverages the knowledge of
keeps managers continually focused one year lower-level managers to provide more accurate
ahead. estimates than those imposed by top managers
who have less intimate knowledge of day-to-day
8-4 A master budget represents a summary operations. (3) It increases the lower-level
of all of management’s plans and goals for the managers’ motivation to achieve their own self-
future, and outlines the way in which these imposed goals. (4) It empowers lower-level
plans are to be accomplished. The master managers to take ownership of the budget and
budget is composed of a number of smaller, to be accountable for deviations from it.
specific budgets encompassing sales, Self-imposed budgets do carry with
production, raw materials, direct labor, them the risk of budgetary slack. The budgets
manufacturing overhead, selling and prepared by lower-level managers should be
administrative expenses, and inventories. The carefully reviewed to prevent too much slack.
master budget usually also contains a budgeted
income statement, budgeted balance sheet, and 8-9 The direct labor budget and other
cash budget. budgets can be used to forecast workforce
staffing needs. Careful planning can help a
8-5 The level of sales impacts virtually every company avoid erratic hiring and laying off of
other aspect of the firm’s activities. It employees.
determines the production budget, cash
collections, cash disbursements, and selling and 8-10 The principal purpose of the cash
administrative budget that in turn determine the budget is NOT to see how much cash the
cash budget and budgeted income statement company will have in the bank at the end of the
and balance sheet. year. Although this is one of the purposes of the
cash budget, the principal purpose is to provide
8-6 No. Planning and control are different, information on probable cash needs during the
although related, concepts. Planning involves budget period, so that bank loans and other
developing goals and developing budgets to sources of financing can be anticipated and
achieve those goals. Control, by contrast, arranged well in advance.
involves the means by which management
Copyright © 2024 McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw Hill LLC.
Managerial Accounting 18th Edition, Solutions Manual, Chapter 8
,Chapter 8: Applying Excel
The completed worksheet is shown below.
Copyright © 2024 McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw Hill LLC.
Managerial Accounting 18th Edition, Solutions Manual, Chapter 8 527
, Chapter 8: Applying Excel (continued)
The completed worksheet, with formulas displayed, is shown below.
Copyright © 2024 McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw Hill LLC.
Managerial Accounting 18th Edition, Solutions Manual, Chapter 8
