Budget A plan showing a company’s objectives and proposed ways of attaining the objectives. Major types of budgets are (1) master budget, (2) responsibility budget, and (3) capital budget.

Budgeting The coordination of financial and nonfinancial planning to satisfy an organization’s goals.

Budget variance The difference between an actual cost incurred (or revenue earned) at a certain level of operations and the budgeted amount for the same level of operations.

Cash budget A plan indicating expected inflows (receipts) and outflows (disbursements) of cash; it helps management decide whether enough cash will be available for short-term needs.

Financial budget The projected balance sheet portion of a master budget.

Fixed costs Costs that are unaffected in total by the relative level of production or sales.

Flexible operating budget A special budget that provides detailed information about budgeted expenses (and revenues) at various levels of output.

Just-in-time inventory system Provides that goods are produced and delivered just in time to be sold.

Master budget The projected income statement (planned operating budget) and projected balance sheet (financial budget) showing the organization’s objectives and proposed ways of attaining them; includes supporting budgets for various items in the master budget; also called master profit plan. The master budget is the overall plan of the enterprise and ideally consists of all of the various segmental budgets.

Participatory budgeting A method of preparing the budget that includes the participation of all levels of management responsible for actual performance.

Planned operating budget The projected income statement portion of a master budget.

Production budget A budget that takes into account the units in the sales budget and the company’s inventory policy.

Variable costs Costs that vary in total directly with production or sales and are a constant dollar amount per unit of output over different levels of output or sales.

Zero-base budgeting Managers in a company start each year with zero budget levels and must justify every dollar that will appear in the budget.