Professional Documents
Culture Documents
Budgeting
Accounting, 21st Edition
Warren Reeve Fess
Transportation
15%
Estimated
portion of Clothing
Utilities
your total 7%
5%
monthly Other
income that 4% Food
should be 20%
Medical
budgeted 5%
Nature
Nature and
and Objectives
Objectives of
of Budgeting
Budgeting
Objectives of Budgeting
• Establishing specific goals
• Executing plans to achieve the goals
• Periodically comparing actual results to the goals
Feedback
CONTROLLIN
PLANNING DIRECTING
G
Nature
Nature and
and Objectives
Objectives of
of Budgeting
Budgeting
Feb. Mar. Apr. May June July Aug. Sep. Oct. Nov. Dec. Jan.
2006 2006 2006 2006 2006 2998 2006 2006 2006 2006 2006 2007
Delete on
February 28
Continuous
Continuous Budgeting
Budgeting
One-Year Budget
Mar. Apr. May June July Aug. Sep. Oct. Nov. Dec. Jan. Feb.
2006 2006 2006 2006 2998 2006 2006 2006 2006 2006 2007 2007
Cost
Cost per
per unit
unit isis $5.50
$5.50 at
at all
all levels
levels of
of activity
activity
Colter Manufacturing Company
Assembly Department Budget
For the Month Ending July 31, 2006
Units of production 8,000 9,000 10,000
Variable cost:
Direct labor $40,000 $45,000 $50,000
Electric power 4,000 4,500 5,000
Total variable cost $44,000 $49,500 $55,000
Fixed cost:
Electric power $ 1,000 $ 1,000 $ 1,000
Supervisor salaries 15,000 15,000 15,000
Total fixed cost $16,000 $16,000 $16,000
Colter Manufacturing Company
Assembly Department Budget
For the Month Ending July 31, 2006
Units of production 8,000 9,000 10,000
Variable cost:
Direct labor $40,000 $45,000 $50,000
Electric power 4,000 4,500 5,000
Total variable cost $44,000 $49,500 $55,000
Fixed cost:
Electric power $ 1,000 $ 1,000 $ 1,000
Supervisor salaries 15,000 15,000 15,000
Total fixed cost $16,000 $16,000 $16,000
Total department costs $60,000 $65,500 $71,000
Static
Static and
and Flexible
Flexible Budgets
Budgets
Overbudget
u a l
Act lts
es u
R
Static
Budget
$60,000 $72,000
Static
Static and
and Flexible
Flexible Budgets
Budgets
Overbudget
u a l
Flexible Budget Act lts
es u
9,000 10,000 R
8,000
units units units
Selling Factory
FactoryOverhead
Selling&
& Overhead
Administrative Cost
CostBudget
Budget
Administrative
Expenses
Expenses
Budget
Budget
Elite Accessories Inc.
Sales Budget
For the Year Ending December 31, 2006
Unit Sales Unit Selling Total
Product and Region Volume Price Sales
Wallet:
East………………..287,000 $12.00 $ 3,444,000
West……………….241,000 12.00 2,892,000
Total…………….528,000 $ 6,336,000
Handbag:
East………………..156,400 $25.00 $ 3,910,000
West……………….123,600 25.00 3,090,000
Total…………….280,000 $ 7,000,000
Total revenue from
Sales……………….. $13,336,000
Elite Accessories Inc.
Production Budget
For the Year Ending December 31, 2006
Units
Wallet Handbag
From
Fromsales
salesbudget
budget
Elite Accessories Inc.
Production Budget
For the Year Ending December 31, 2006
Units
Wallet Handbag
Note A: Leather: 520,000 units x 0.30 sq. yd. per unit = 156,000 sq. yds.
Lining: 520,000 units x 0.10 sq. yd. Per unit = 52,000 sq. yds.
Elite Accessories Inc.
Direct Materials Purchases Budget
For the Year Ending December 31, 2006
Direct Materials
Leather Lining Total
Square yards required for production:
Wallet (Note A)……..……..…….. 156,000 52,000
Handbag (Note B)……………….. 365,000 146,000
Note B: Leather: 292,000 units x 1.25 sq. yd. per unit = 365,000 sq. yds.
Lining: 292,000 units x 0.50 sq. yd. Per unit = 146,000 sq. yds.
Elite Accessories Inc.
Direct Materials Purchases Budget
For the Year Ending December 31, 2006
Direct Materials
Leather Lining Total
Square yards required for production:
Wallet (Note A)……....………….. 156,000 52,000
Handbag (Note B).………………. 365,000 146,000
Plus desired inventory, Dec. 31, 2006 20,000 12,000
Total……………………………… 541,000 210,000
Elite Accessories Inc.
Direct Materials Purchases Budget
For the Year Ending December 31, 2006
Direct Materials
Leather Lining Total
Square yards required for production:
Wallet (Note A) …………………. 156,000 52,000
Handbag (Note B) ………………. 365,000 146,000
Plus desired inventory, Dec. 31, 2006 20,000 12,000
Total……………………………… 541,000 210,000
Less estimated inventory, Jan. 1, 2006 18,000 15,000
Total square yards to be produced.. 523,000 195,000
Elite Accessories Inc.
Direct Materials Purchases Budget
For the Year Ending December 31, 2006
Direct Materials
Leather Lining Total
Square yards required for production:
Wallet (Note A)………………….. 156,000 52,000
Handbag (Note B).………………. 365,000 146,000
Plus desired inventory, Dec. 31, 2006 20,000 12,000
Total……………………………… 541,000 210,000
Less estimated inventory, Jan. 1, 2006 18,000 15,000
Total square yards to be produced.. 523,000 195,000
Unit price (per square yard)…………. x $4.50 x $1.20
Total direct materials to be purchased. $2,353,500 $234,000 $2,587,500
Elite Accessories Inc.
Direct Labor Cost Budget
For the Year Ending December 31, 2006
Cutting Sewing Total
Note A: Cutting Department: 520,000 units x 0.10 hr. per unit = 52,000 hrs.
Sewing Department: 520,000 units x 0.25 hr. per unit = 130,000 hrs.
Elite Accessories Inc.
Direct Labor Cost Budget
For the Year Ending December 31, 2006
Cutting Sewing Total
Note A: Cutting Department: 520,000 units x 0.10 hr. per unit = 52,000 hrs.
. Sewing Department: 520,000 units x 0.25 hr. per unit = 130,000 hrs.
Note B: Cutting Department: 292,000 units x 0.15 hr. per unit = 43,800
hrs.
Sewing Department: 292,000 units x 0.40 hr. per unit = 116,800 hrs
Elite Accessories Inc.
Direct Labor Cost Budget
For the Year Ending December 31, 2006
Cutting Sewing Total
Note A: Cutting Department: 520,000 units x 0.10 hr. per unit = 52,000 hrs.
. Sewing Department: 520,000 units x 0.25 hr. per unit = 130,000 hrs.
Note B: Cutting Department: 520,000 units x 0.15 hr. per unit = 43,800
hrs.
Sewing Department: 520,000 units x 0.40 hr. per unit = 116,800 hrs
Elite Accessories Inc.
Direct Labor Cost Budget
For the Year Ending December 31, 2006
Cutting Sewing Total
Note
NoteA:
A: Leather:
Leather: 18,000
18,000sq.
sq.yds.
yds.xx$4.50
$4.50per
persq.
sq.yd
yd $81,000
$81,000
Lining:
Lining: 15,000
15,000sq.
sq.yds.
yds.xx$1.20
$1.20per
persq.
sq.yd
yd 18,000
18,000
Direct
Directmaterials
materials
inventory,
inventory,
January
January1,1,2006
2006 $99,000
$99,000
Elite Accessories Inc.
Cost of Goods Sold Budget
For the Year Ending December 31, 2006
Finished goods inventory, January 1 ,2006….. $ 1,095,600
Work in process inventory, January 1, 2006… $ 214,400
Direct materials:
Direct materials inventory, January 1, 2006
(Note A)………………………………….$ 99,000
Note
NoteB:
B: Leather:
Leather: 20,000
20,000sq.
sq.yds.
yds.xx$4.50
$4.50per
persq.
sq.yd
yd $$ 90,000
90,000
Lining:
Lining: 12,000
12,000sq.
sq.yds.
yds.xx$1.20
$1.20per
persq.
sq.yd
yd 14,400
14,400
Direct
Directmaterials
materialsinventory,
inventory,December
December31, 31,2006
2006 $104,400
$104,400
Elite Accessories Inc.
Cost of Goods Sold Budget
For the Year Ending December 31, 2006
Finished goods inventory, January 1 ,2006…. $ 1,095,600
Work in process inventory, January 1, 2006... $ 214,400
Direct materials:
Direct materials inventory, January 1, 2006
(Note A)…………………………………. $ 99,000
Direct materials purchases (Slide 3)…….. 2,587,500
Cost of direct materials available for use…. $2,686,500
Less direct materials inventory,
December 31, 2006 (Note B)……………. 104,400
Cost of direct materials placed in production $2,582,100
Direct labor (Slide 35)………………………. 4,851,600
Factory overhead (Slide 36)………………….. 2,089,080
Total manufacturing costs……………………. 9,522,780
Total work in process during period…………. $9,737,180
Elite Accessories Inc.
Cost of Goods Sold Budget
For the Year Ending December 31, 2006
Finished goods inventory, January 1 ,2006………... $ 1,095,600
Note
NoteA:
A: $108,000
$108,000==$1,080,000
$1,080,000xx10%
10%
$124,000
$124,000==$1,240,000
$1,240,000xx10%
10%
$$ 97,000
97,000==$$ 970,000
970,000xx10%
10%
Elite Accessories Inc.
Schedule of Collections from Sales
For the Three Months Ending March 31, 2006
January February March
Receipts from cash sales:
Cash sales (10%)(see
Note A)……………………...$108,000 $ 124,000 $ 97,000
Receipts from sales on account:
Collections from prior month’s
sales (40%)(see Note B)…….$370,000$ 388,800 $446,400
ote B:
Note B: $370,000,
$370,000,given
givenas
asJanuary
January1,1,2006
2006 Accounts
Accounts
Receivable
Receivablebalance
balance
$388,800
$388,800==$1,080,000
$1,080,000xx90%
90%xx40%40%
$446,400
$446,400==$1,240,000
$1,240,000xx90%
90%xx40%40%
Elite Accessories Inc.
Schedule of Collections from Sales
For the Three Months Ending March 31, 2006
January February March
Receipts from cash sales:
Cash sales (10%)(see
Note A)……………………...$108,000$ 124,000$ 97,000
Receipts from sales on account:
Collections from prior month’s
sales (40%)(see Note B)…….$370,000$ 388,800 $446,400
Collections from current month’s sales (60%)(see
Note
C)…………………………… 583,200 669,600 523,800
Note
NoteC:
C: $583,200
$583,200==$1,080,000
$1,080,000xx90%
90%xx60%
60%
$669,600
$669,600==$1,240,000
$1,240,000xx90%
90%xx60%
60%
$523,800
$523,800==$$ 970,000
970,000xx90%
90%xx60%
60%
Elite Accessories Inc.
Schedule of Collections from Sales
For the Three Months Ending March 31, 2006
January February March
Receipts from cash sales:
Cash sales (10%)(see
Note A)……………………... $108,000$ 124,000$ 97,000
Receipts from sales on account:
Collections from prior month’s
sales (40%)(see Note B)……. $370,000$ 388,800$446,400
Collections from current month’s sales (60%)(see Note
C)…………………………… 583,200 669,600 523,800
Total receipts from sales on account……………………...
$953,200 $1,058,400$970,200
Elite Accessories Inc.
Schedule of Payments for Manufacturing Costs
For the Three Months Ending March 31, 2006
January February March
Payment of prior month’s
manufacturing costs (25%)
(see Note A)………………… $190,000 $204,000 $189,000
Note
NoteA:
A: $190,000,
$190,000,given
givenas
asJanuary
January1,1,2006
2006Accounts
Accounts
Payable
Payablebalance
balance
$204,000
$204,000==($840,000
($840,000–$24,000)
–$24,000)xx25%
25%
$189,000
$189,000==($780,000
($780,000––$24,000)
$24,000)xx75%
75%
Elite Accessories Inc.
Schedule of Payments for Manufacturing Costs
For the Three Months Ending March 31, 2006
January February March
Payment of prior month’s
manufacturing costs (25%)
(see Note A)………………… $190,000 $204,000 $189,000
Payment of current month’s
manufacturing costs (75%)
(see Note B)…………………. 612,000 567,000 591,000
Note
NoteB:
B: $612,000
$612,000==($840,000
($840,000––$24,000)
$24,000)xx75%
75%
$567,000
$567,000==($780,000
($780,000––$24,000)
$24,000)xx75%
75%
$591,000
$591,000==($812,000
($812,000––$24,000)
$24,000)xx75%
75%
Elite Accessories Inc.
Schedule of Payments for Manufacturing Costs
For the Three Months Ending March 31, 2006
January February March
Payment of prior month’s
manufacturing costs (25%)
(see Note A)………………… $190,000 $204,000 $189,000
Payment of current month’s
manufacturing costs (75%)
(see Note B)…………………. 612,000 567,000 591,000
Total payments………………. $802,000 $771,000 $780,000
Elite Accessories Inc.
Cash Budget
For the Three Months Ending March 31, 2006
Estimated cash receipts: January February March
Cash sales (Slide 45)………….. $ 108,000 $ 124,000 $ 97,000
Collections of accounts
receivable (Slide 48)………... 953,200 1,058,400 970,200
Interest revenue………………... — — 24,500
Total cash receipts…………….$1,061,200 $1,182,400 $1,091,700
Elite Accessories Inc.
Cash Budget
For the Three Months Ending March 31, 2006
Estimated cash receipts: January February March
Cash sales (Slide 45)………….. $ 108,000 $ 124,000 $ 97,000
Collections of accounts
receivable (Slide 48)………... 953,200 1,058,400 970,200
Interest revenue………………... — — 24,500
Total cash receipts…………….$1,061,200 $1,182,400 $1,091,700
Estimated cash payments for:
Manufacturing costs (Slide 51).. $ 802,000$ 771,000$ 780,000
Selling and administrative expenses………………………
160,000 165,000145,000
Capital additions 274,000
Interest expense 22,500
Income taxes 150,000
Elite Accessories Inc.
Cash Budget
For the Three Months Ending March 31, 2006
Estimated cash receipts: January February March
Cash sales (Slide 45)………….. $ 108,000 $ 124,000 $ 97,000
Collections of accounts
receivable (Slide 48)………... 953,200 1,058,400 970,200
Interest revenue………………... — — 24,500
Total cash receipts…………….$1,061,200 $1,182,400 $1,091,700
Estimated cash payments for:
Manufacturing costs (Slide 51).. $ 802,000$ 771,000$ 780,000
Selling and administrative expenses……………………… 160,000 165,000
145,000
Capital additions 274,000
Interest expense 22,500
Income taxes 150,000
Total cash payments…………. $ 984,500$1,210,000$1,075,000
Elite Accessories Inc.
Cash Budget
For the Three Months Ending March 31, 2006
Estimated cash receipts: January February March
Cash sales (Slide 45)………….. $ 108,000 $ 124,000 $ 97,000
Collections of accounts
receivable (Slide 48)………... 953,200 1,058,400 970,200
Capital additions 274,000
Interest expense……………….. 22,500
Income taxes…………………... 150,000
Total cash payments………….$ 984,500 $1,210,000 $1,075,000
The
The End
End