Professional Documents
Culture Documents
McGraw-Hill/Irwin
Types of Budgets
Detail Budget
Detail Budget Detail Budget
Production
Master Budget
Covering all phases of a companys operations.
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Types of Budgets
Income Statement
Balance Sheet
Types of Budgets
Capital budgets with acquisitions that normally cover several years. Financial budgets with financial resource acquisitions.
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2002
This budget is usually a twelve-month budget that rolls forward one month as the current month is completed.
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Production Budget
Overhead Budget
Cash Budget
Sales Budget
Breakers, Inc. is preparing budgets for the quarter ending June 30. Budgeted sales for the next five months are: April 20,000 units May 50,000 units June 30,000 units July 25,000 units August 15,000 units. The selling price is $10 per unit.
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Sales Budget
April Budgeted sales (units) 20,000 Selling price per unit $ 10 Total Revenue $ 200,000 May June Quarter
50,000 $ 10 $
30,000 10 $
100,000 10
$ 500,000
$ 300,000
$ 1,000,000
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Production Budget
The management of Breakers, Inc. wants ending inventory to be equal to 20% of the following months budgeted sales in units. On March 31, 4,000 units were on hand. Lets prepare the production budget.
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Production Budget
From sales budget
Sales in units Add: desired end. inventory Total needed Less: beg. inventory Units to be produced
May 50,000
June 30,000
Quarter 100,000
Ending inventory becomes beginning inventory the next 6,000 5,000 5,000 month
Direct-Material Budget
At Breakers, five pounds of material are required per unit of product. Management wants materials on hand at the end of each month equal to 10% of the following months production. On March 31, 13,000 pounds of material are on hand. Material cost $.40 per pound. Lets prepare the direct materials budget.
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Direct-Material Budget
April 26,000 5 130,000 23,000 153,000 13,000 140,000 May 46,000 5 230,000 14,500 244,500 23,000 221,500 June 29,000 5 145,000 11,500 156,500 14,500 142,000 Quarter 101,000 5 505,000 11,500 516,500 13,000 503,500
Production in units Materials per unit Production needs Add: desired ending inventory Total needed Less: beginning inventory Materials to be purchased
March 31 inventory
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Direct-Material Budget
July Production
April 25,000 May Sales in units Add: Production in units desired ending inventory 26,000 3,000 46,000 TotalMaterials per unit units needed 528,000 5 Less:Productioninventory 130,000 5,000 230,000 beginning needs Production in units 23,000
Add: desired ending inventory 23,000 14,500 11,500 Total needed 153,000 244,500 156,500 Less: beginning June Ending Inventory inventory 13,000 23,000 14,500 July be 23,000 Materials toproduction in units Materials per unit 5 purchased 140,000 221,500 142,000 Total units needed 115,000 Inventory percentage 10% June desired ending inventory 11,500
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Direct-Labor Budget
At Breakers, each unit of product requires 0.1 hours of direct labor.
The Company has a no layoff policy so all employees will be paid for 40 hours of work each week.
In exchange for the no layoff policy, workers agreed to a wage rate of $8 per hour regardless of the hours worked (No overtime pay). For the next three months, the direct labor workforce will be paid for a minimum of 3,000 hours per month. Lets prepare the direct labor budget.
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Direct-Labor Budget
Production in units Direct labor hours Labor hours required Guaranteed labor hours 3,000 Labor hours paid 3,000 Wage rate $ 8 Total direct labot cost $ 24,000 April 26,000 0.10 2,600 May 46,000 0.10 4,600 3,000 4,600 $ 8 $ 36,800 June 29,000 0.10 2,900 3,000 3,000 $ 8 $ 24,000 Quarter 101,000 0.10 10,100
10,600 $ 8 $ 84,800
Overhead Budget
Here is Breakers Overhead Budget for the quarter.
April Indirect labor Indirect material Utilities Rent Insurance Maintenance $ 17,500 7,000 4,200 13,300 5,800 8,200 56,000 $ May 26,500 12,600 8,400 13,300 5,800 9,400 76,000 $ June 17,900 8,600 5,200 13,300 5,800 8,200 59,000 $ Quarter 61,900 28,200 17,800 39,900 17,400 25,800 $ 191,000
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$ 170,000
$ 400,000
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April Beginning cash balance $ 40,000 Add: cash collections 170,000 Total cash available 210,000 Less: disbursements Materials 40,000 Direct labor 24,000 Mfg. overhead 56,000 Selling and admin. 70,000 Equipment purchase Dividends 25,000 Total disbursements 215,000 Excess (deficiency) of Cash available over disbursements $ (5,000)
From our Cash Disbursements Budget From our Direct Labor Budget From our Overhead Budget From our Selling and Administrative Expense Budget
To maintain a cash balance of $30,000, Breakers must borrow $35,000 on its line of credit. 1-24
$ 16,200
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$ 86,000
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$ 16,200
$ 86,000
$ 37,200
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Excess (deficiency) of Cash available over disbursements Financing: Borrowing Repayments Interest Total financing Ending cash balance
$ 86,000
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Cost of goods manufactured Add: Beg. finished-goods inventory Cost of goods available for sale Deduct: End. finished-goods inventory Cost of goods sold
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$ $ $
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25%of June sales of $300,000 11,500 lbs. at $.40 per lb. 5,000 units at $4.60 per unit. 50% of June purchases of $56,800
Beginning balance Add: net income Deduct: dividends Ending balance
Breakers, Inc. Budgeted Balance Sheet June 30 Current assets Cash Accounts receivable Raw materials inventory Work-in-process inventory Finished goods inventory Total current assets Property and equipment Land Building Equipment Total property and equipment Total assets $ 36,362 75,000 4,600 17,000 23,000 155,962 50,000 148,000 192,000 390,000 545,962 28,400 217,000 300,562 545,962
$ $
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Budget Administration
The Budget Committee is a standing committee responsible for . . .
overall policy matters relating to the budget. coordinating the preparation of the budget.
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rates. 2. High inflation rates in some foreign countries. 3. Differences in local economic conditions.
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Participative Budgeting
End of Chapter 9
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