Professional Documents
Culture Documents
McGraw-Hill/Irwin
Learning Objective 1
McGraw-Hill/Irwin
Types of Budgets
Detail Budget Detail Budget
Materials
Master Budget
Covering all phases of a companys operations.
Detail Budget
Sales
Production
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Types of Budgets
Income Statement
Types of Budgets
Capital budgets with acquisitions Capital budgets with acquisitions that normally cover several years. that normally cover several years. Financial budgets with financial Financial budgets with financial resource acquisitions. resource acquisitions.
2001
2002
This budget is usually a twelve-month This budget is usually a twelve-month budget that rolls forward one month budget that rolls forward one month as the current month is completed. as the current month is completed.
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Learning Objective 2
McGraw-Hill/Irwin
Direct Materials
Overhead Budget
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Learning Objective 3
McGraw-Hill/Irwin
Resources Resources
Activities Activities
Activities Activities
Activity-Based Activity-Based Budgeting (ABB) Budgeting (ABB)
Cost objects: Cost objects: products and services products and services produced, and produced, and customers served. customers served.
Forecast of products Forecast of products and services to be and services to be produced and produced and customers served. customers served.
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Learning Objective 4
McGraw-Hill/Irwin
Sales Budget
Breakers, Inc. is preparing budgets for the quarter Breakers, Inc. is preparing budgets for the quarter ending June 30. ending June 30. Budgeted sales for the next five months are: Budgeted sales for the next five months are: April 20,000 units April 20,000 units May 50,000 units May 50,000 units June 30,000 units June 30,000 units July 25,000 units July 25,000 units August 15,000 units. August 15,000 units. The selling price is $10 per unit. The selling price is $10 per unit.
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Sales Budget
April Budgeted sales (units) Selling price per unit T otal Rev enue May June Quarter
2, 2 2 2 2 $ 2 2 $
2, 2 2 2 2 2 2 $
2, 2 2 2 2 2 2 $
22 2 2 22 , 2 2
$ 22 2 2 22 ,
$ 22 2 2 22 ,
$ 22 2 2 22 ,
$ 2 2,22 ,22 2
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Production Budget
The management of Breakers, Inc. wants ending The management of Breakers, Inc. wants ending inventory to be equal to 20% of the following inventory to be equal to 20% of the following months budgeted sales in units. months budgeted sales in units. On March 31, 4,000 units were on hand. On March 31, 4,000 units were on hand. Lets prepare the production budget. Lets prepare the production budget.
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Production Budget
April 2, 2 22 2 2, 2 22 2 2, 2 22 2 22 2 , 2 2, 2 22 2 May 2, 2 22 2 June 2, 2 22 2 Quarter 2 22 2 2, 2
Sales in units Add: desired end. inventory Total needed Less: beg. inventory Units to be produced
2, 2 22 2 2, 2 22 2
22 2 , 2 2 2 ,2 2 2
22 2 , 2 2 22 2 2, 2
Direct-Material Budget
At Breakers, five pounds of material are required At Breakers, five pounds of material are required per unit of product. per unit of product. Management wants materials on hand at the end Management wants materials on hand at the end of each month equal to 10% of the following of each month equal to 10% of the following months production. months production. On March 31, 13,000 pounds of material are on On March 31, 13,000 pounds of material are on hand. Material cost $.40 per pound. hand. Material cost $.40 per pound. Lets prepare the direct materials budget. Lets prepare the direct materials budget.
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Direct-Material Budget
March 31 inventory
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Direct-Material Budget
July Production Sales in units Add: desired ending inventory Total units needed Less: beginning inventory Production in units 2, 2 22 2 22 2 , 2 2 2 ,2 2 2 22 2 , 2 2, 2 22 2
June Ending Inventory July production in units 2, 2 22 2 Materials per unit 2 Total units needed 2 22 2 2, 2 Inventory percentage 2% 2 June desired ending inventory 2, 2 22 2
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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
Overhead Budget
Here is Breakers Overhead Budget for the quarter.
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Cash Budget
Cash Budget
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(Collections and Disbursements) At the end of June, Breakers has enough cash to repay the $48,800 loan plus interest at 12%.
Cash Budget
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Cash Budget
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Cash Budget
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$ $ $
2, 2 $ 22 2 (22 ) $ , 222 2, 2 22 2 2, 2 $ 22 2
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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
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Learning Objective 5
McGraw-Hill/Irwin
When the interactions of the elements Selling Endingthe master budget are expressed as and Direct Direct of Overhead Inventory Materials Labor Budget a set of mathematical relations,Administrative it Budget Budget Budget Budget Direct Materials becomes a financial planning model that can be used to answer what if Cash Budget questions about unknown variables.Income Budgeted
Statement Budgeted Balance Sheet Budgeted Statement of Cash Flows
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Learning Objective 6
McGraw-Hill/Irwin
Budget Administration
The Budget Committee is a standing committee responsible for . . .
overall policy matters relating to the budget. overall policy matters relating to the budget. q coordinating the preparation of the budget. q coordinating the preparation of the budget.
q q
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rates. rates. High inflation rates in some foreign countries. High inflation rates in some foreign countries. Differences in local economic conditions. Differences in local economic conditions.
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Learning Objective 7
McGraw-Hill/Irwin
Production. Production.
Learning Objective 8
McGraw-Hill/Irwin
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Participative Budgeting
T M o p M a n a g e m M e n t
M S
i d d l e a n a g e m
e n t M
i d d l e a n a g e m
e n
u p e r v Si s u o p r e r v Si s u o p r e r v Si s u o p r e r v i s
End of Chapter 9
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