Activity-based budgeting is a budget system based on expected activities.
(2) How does activity-based budgeting differ from traditional budgeting?
The difference between activity-based and traditional budgeting is described considering the three factors: meaning, encouragement, and targets/rewards.
Activity-based and Traditional budgeting are the two types of budgeting methods that are inversely proportional to each other.
This type of budgeting method is based on the activities of the firm.
This budgeting method considers the previous year's budget while making the current budget.
Increasing management performance
Electro Company manufactures an innovative automobile transmission for electric cars. Management predicts that ending finished goods inventory for the first quarter will be 90,000 units. The following unit sales of the transmissions are expected during the rest of the year: second quarter, 450,000 units; third quarter, 525,000 units; and fourth quarter, 475,000 units. Company policy calls for the ending finished goods inventory of a quarter to equal 20% of the next quarter’s budgeted sales. Prepare a production budget for both the second and third quarters that shows the number of transmissions to manufacture.
Kingston anticipates total sales for June and July of $420,000 and $398,000, respectively. Cash sales are normally 60% of total sales. Of the credit sales, 20% are collected in the same month as the sale, 70% are collected during the first month after the sale, and the remaining 10% are collected in the second month after the sale. Determine the amount of accounts receivable reported on the company’s budgeted balance sheet as of July 31.
Miami Solar budgets production of 5,300 solar panels for August. Each unit requires 4 hours of direct labor at a rate of $16 per hour. Variable factory overhead is budgeted to be 70% of direct labor cost, and fixed factory overhead is $180,000 per month. Prepare a factory overhead budget for August.
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