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Which of the following describes the order in which the four types of budgets must be prepared? a. Production, sales, direct materials purchases, cash received on account b. Sales, production, direct materials purchases, cash budget c. Cash receipts, direct labor, production, sales d. Sales, direct materials purchases, production, cash disbursements

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Cornerstones of Cost Management (C...

4th Edition
Don R. Hansen + 1 other
Publisher: Cengage Learning
ISBN: 9781305970663

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Chapter
Section
BuyFindarrow_forward

Cornerstones of Cost Management (C...

4th Edition
Don R. Hansen + 1 other
Publisher: Cengage Learning
ISBN: 9781305970663
Chapter 8, Problem 32E
Textbook Problem
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Which of the following describes the order in which the four types of budgets must be prepared?

  1. a. Production, sales, direct materials purchases, cash received on account
  2. b. Sales, production, direct materials purchases, cash budget
  3. c. Cash receipts, direct labor, production, sales
  4. d. Sales, direct materials purchases, production, cash disbursements

To determine

Indicate the order in which the four types of budget must be prepared.

Explanation of Solution

Justification for correct answer:

Budget: Budget is the process of identifying, collecting, and summarizing the financial information. Budget plan is used by the managers to coordinate the organization’s future activities. It is a statement which is prepared by the management for a specific period to achieve the goal of management in future. Basically, budget is expressed in the financial terms.

The following are the order of budget:

  • Sales budget
  • Production budget
  • Direct material purchases budget
  • Direct labor budget
  • Factory overhead budget
  • Cost of goods sold budget
  • Selling and administrative expense budget
  • Cash budget.

Sales Budget: This budget is prepared by the organization for the yearly or monthly basis as per need. It includes all the estimated revenues from the entire operating source.

Sales budget is prepared to estimate or project the sales in dollars and units for a particular period of time.

Production Budget: The production budget refers to that budget which forecasts the production for the future accounting period...

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Chapter 8 Solutions

Cornerstones of Cost Management (Cornerstones Series)
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