Professional Documents
Culture Documents
CHAPTER
Functional
and ActivityBased
Budgeting
8 -2
Objectives
1. Discuss budgeting
and its role
After studying
thisin planning,
control, andchapter,
decisionyou
making.
should
2. Define and prepare
a master
be able
to: budget, identify
its major components, and explain the
interrelationships of its various components.
Continued
8 -3
Objectives
3. Describe flexible budgeting, and list the
features that a budgetary system should have
to encourage managers to engage in goalcongruent behavior.
4. Explain how activity-based budgeting works.
Planning
8 -4
Strategic Plan
Long-Term
Objectives
Short-Term
Objectives
Short-Term
Plan
Budgets
Feedback
Budgeting
and
Planning
and Control
Planning
Strategic Plan
Long-Term
Objectives
Control
Monitoring of
Actual Activity
Short-Term
Objectives
Short-Term
Plan
Budgets
Feedback
Comparison of
Actual with
Planned
Investigation
Corrective Action
8 -5
8 -6
Advantages of Budgeting
1. It forces managers to plan.
8 -7
8 -8
8 -9
8 -10
8 -11
Schedule 1
Texas Rex, Inc.
Sales Budget
For the Year Ended December 31, 2004
Quarter
1
2
3
4
Year
Units
1,000
1,200
1,500
2,000
5,700
Unit selling price x $10 x $10 x $10 x $10 x $10
Budgeted sales $10,000 $12,000 $15,000 $20,000 $57,000
8 -12
8 -13
Schedule 2
Texas Rex, Inc.
Production Budget
For the Year Ended December 31, 2004
Quarter
1
2
3
4
Sales (Schedule 1)
1,000 1,200
1,500
2,000
Desired ending
inventory
240
300
400
200
Total needs
1,240 1,500
1,900
2,200
Less: Beginning
inventory
-180
-240
-300
-400
Units to be
produced
1,060 1,260
1,600
1,800
Year
5,700
200
5,900
-180
5,720
8 -14
8 -15
Schedule 3
Texas Rex, Inc.
Direct Materials Purchases Budget
For the Year Ended December 31, 2004
Quarter
1
2
3
4
Units to be produced
(Schedule 2)
1,060
Direct materials per
unit
x 1
Production needs
1,060
Desired ending
inventory
126
Total needs
1,186
Year
1,260
1,600
1,800
5,720
x 1
1,260
x 1
1,600
x 1
1,800
x 1
5,720
160
1,420
180
1,780
106
1,906
106
5,826
Continued
8 -16
1
Total needs
Less: beginning
inventory
Direct materials to
be purchased
Cost per pound
Total purchase cost
plain t-shirts
Quarter
2
3
Year
1,186
1,420
1,780
1,906
5,826
-58
-126
-160
-180
-58
1,128
x $3
1,294
x $3
1,620
x $3
1,726
5,768
x $3 x
$3
$3,384
$3,882
$4,860
$5,178 $17,304
8 -17
Schedule 3
Texas Rex, Inc.
Direct Materials Purchases Budget
For the Year Ended December 31, 2004
Quarter
1
2
3
4
Units to be produced
(Schedule 2)
1,060
Direct materials per
unit
x 5
Production needs
5,300
Desired ending
inventory
630
Total needs
5,930
Year
1,260
1,600
1,800
x 5
6,300
x 5
8,000
x 5 x
5
9,000 28,600
800
7,100
900
8,900
530
530
9,530 29,130
Continued
5,720
8 -18
Quarter
2
3
Year
Total needs
5,930
7,100
8,900
9,530 29,130
Less: beginning
inventory
-390
-630
-800
-900
-390
Direct materials to
be purchased
5,540
6,470
8,100
8,630 28,740
Cost per ounce
x $0.20 x $0.20 x $0.20 x $0.20 x $0.20
Total purchase
cost of ink
$ 1,108 $ 1,294 $ 1,620 $ 1,726 $ 5,748
Total direct
materials purchases cost
$4,492
$5,176
$6,480
$6,904 $23,052
8 -19
Schedule 4
Texas Rex, Inc.
Direct Labor Budget
For the Year Ended December 31, 2004
Quarter
1
2
3
4
Year
Units to be produced
(Schedule 2)
1,060
1,260
1,600 1,800 5,720
Direct labor time
per unit (hr.)
x 0.12 x 0.12 x 0.12 x 0.12 x 0.12
Total hours needed 127.2
151.2
192
216
686.4
Average wage per
hour
x $10 x $10 x $10 x $10 x $10
Total direct labor
cost
$1,272 $1,512 $1,920 $2,160 $6,864
8 -20
Schedule 5
Texas Rex, Inc.
Overhead Budget
For the Year Ended December 31, 2004
Quarter
1
2
3
4
Budgeted direct labor
hours (Schedule 4) 127.2
Variable overhead
rate
x $5
Budgeted variable
overhead
$ 636
Budgeted fixed
overhead
1,645
Total overhead $2,281
151.2
x
$5
192
x
$5 x
Year
216
$5
686.4
x
$5
$ 756
1,645
$2,401
1,645 1,645
6,580
$2,605 $2,725 $10,012
8 -21
Schedule 6
Texas Rex, Inc.
Ending Finished Goods Inventory Budget
For the Year Ended December 31, 2004
Unit-cost computation:
Direct materials ($3 + $1)
Direct labor (0.12 hr. @ $10)
Overhead:
Variable (0.12 hr. @ $5)
Fixed (0.12 hr. @ $9.59)
Total unit cost
Finished goods: Logo T-shirts
$4.00
1.20
0.60
1.15
$6.95
Units
Unit Cost
Total
200
$6.95
$1,390
8 -22
Schedule 7
Texas Rex, Inc.
Cost of Goods Sold Budget
For the Year Ended December 31, 2004
Direct materials used (Schedule 3)
Direct labor used (Schedule 4)
Overhead (Schedule 5)
Budgeted manufacturing costs
Beginning finished goods
Goods available for sale
Less: Ending finished goods (Sched. 6)
Budgeted cost of goods sold
$22,880
6,864
10,012
$39,756
1,251
$41,007
- 1,390
$39,617
8 -23
Schedule 8
Texas Rex, Inc.
Selling and Administrative Expenses Budget
For the Year Ended December 31, 2004
1
Quarter
2
3
Year
8 -24
Quarter
2
3
Year
8 -25
Schedule 9
Texas Rex, Inc.
Budgeted Income Statement
For the Year Ended December 31, 2004
Sales (Schedule 1)
Less: Cost of goods sold (Schedule 7)
Gross margin
Less: Selling and administrative
expenses (Schedule 8)
Operating income
Less: Interest expense (Schedule 10)
Income before taxes
Less: Income taxes (Schedule 10)
Net income
$57,000
-39,617
$17,383
-8,660
$ 8,733
- 60
$ 8,673
-2,550
$ 6,123
8 -26
The Usual
Financial Budgets
The cash budget
The budgeted
balance sheet
The budget for
capital expenditures
8 -27
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
8 -28
8 -29
Source
Cash sales
$ 2,500
Received on
account from:
Quarter 4, 2003
1,350
Quarter 1, 2004
6,750
Quarter 2, 2004
Quarter 3, 2004
Quarter 4, 2004
---Total cash receipts $10,600
$ 3,000
$ 3,750
750
8,100
900
---$11,850
10,125
--$14,775
$ 5,000
1,125
13,500
$19,625
Schedule 11
Texas Rex, Inc.
Budgeted Balance Sheet
December 31, 2004
8 -30
Assets
Current assets:
Cash
Accounts receivable
Materials inventory
Finished goods inventory
Total current assets
Property, plant, and equipment:
Land
Building and equipment
Accumulated depreciation
Total property, plant, and equipment
Total assets
Continued
$ 7,503
1,500
424
1,390
$10,817
$ 1,100
36,500
-7,760
29,840
$40,657
8 -31
$ 1,381
39,276
$40,657
8 -32
Sales Budget
Production Budget
Direct Materials
Purchases Budget
Direct Labor
Budget
Cash
Budget
Overhead
Budget
The Master
Budget
8 -33
Sales Budget
Production Budget
Direct Materials
Purchases Budget
Ending FG
Inventory Budget
Direct Labor
Budget
Overhead
Budget
(Unit
cost)
Cash
Budget
The Master
Budget
8 -34
Sales Budget
Production Budget
Direct Materials
Purchases Budget
Direct Labor
Budget
Ending FG
Inventory Budget
Overhead
Budget
Selling and
Administrative
Expenses
Budget`
Cost of Goods
Sold Budget
Budgeted IS
Cash
Budget
The Master
Budget
8 -35
8 -36
Budgeted Variance
1,200
1,060
140 F
$4,830
1,440
$4,240
1,272
$590 U
168 U
535
170
477
159
58 U
11 U
1,055
540
$8,570
1,105
540
$7,793
-50 F
--$777 U
8 -37
Variable overhead:
Direct materials
Direct labor
Variable overhead:
Supplies
Power
Total variable costs
Fixed overhead:
Supervision
Depreciation
Total fixed costs
Total production costs
Variable Cost
per Unit
$4.00
1.20
$4,000
1,200
$4,800 $5,600
1,440 1,680
0.45
0.15
$5.80
450
150
$5,800
540
630
180
210
$6,960 $8,120
$1,105
540
$1,645
$7,445
$1,105 $1,105
540
540
$1,645 $1,645
$8,605 $9,765
8 -38
8 -39
Actual
Budget
1,200
1, 200
----
$4,830
1,440
$4,800
1, 440
$30 U
----
535
170
$6,975
540
180
$6,960
-5 F
-10 F
$15 F
Continued
Variance
8 -40
Actual
Budget
1,200
1, 200
----
Fixed overhead:
Supervision
1,055
Depreciation
540
Total fixed costs
$1,595
Total production costs $8,570
1,105
540
$1,645
$8,605
-50 F
---$50 F
$35 U
Units produced
Variance
8 -41
8 -42
Activity-Based Budgeting
Activity flexible
budgeting is the
prediction of what
activity costs will
be as activity
output changes.
8 -43
8 -44
Variable
10,000
20,000
Direct materials
---
$10
$100,000
$200,000
Direct labor
---
80,000
160,000
$ 20,000
50,000
80,000
Machining
15,000
25,000
35,000
Inspections
120,000
---
120,000
120,000
50,000
---
50,000
50,000
220,000
---
220,000
220,000
$425,000
$22
$645,000
$865,000
Maintenance
Setups
Purchasing
Total
8 -45
Level of Activity
10,000
20,000
Direct materials
---
$10
$100,000
$200,000
Direct labor
---
80,000
160,000
$0
$18
$180,000
$360,000
Subtotal
Fixed
Variable
8,000
16,000
$20,000
$5.50
$64,000
$108,000
15,000
2.00
31,000
47,000
$35,000
$7.50
$95,000
$155,000
Continued
8 -46
Inspections
Fixed
Variable
25
30
$80,000
$2,100
$132,500
$143,000
---
1,800
45,000
54,000
$80,000
$3,900
$177,500
$197,000
15,000
25,000
$226,000
$236,000
$678,500
$948,000
Setups
Subtotal
Total
$211,000
Variable
$
8 -47
Budgeted Costs
Budget Variance
$101,000
$100,000
$ 1,000 U
Direct labor
80,000
80,000
---
Maintenance
55,000
64,000
9,000 F
Machining
29,000
31,000
2,000 F
Inspections
125,500
132,500
7,000 F
46,500
45,000
1,500 U
220,000
226,000
6,000 F
$657,000
$678,500
$21,500 F
Direct materials
Setups
Purchasing
Total
8 -48
Actual Cost
Budgeted Cost
Variance
Inspection:
Fixed
Variable
Total
$ 82,000
$ 80,000
$2,000 U
43,500
52,500
9,000 F
$125,500
$132,500
$7,000 F
8 -49
Chapter Eight
The End
8 -50