Professional Documents
Culture Documents
Budgeting
LO 1
LO 1
Objectives of Budgeting
Budgeting affects the following
managerial functions:
Planning, which involves setting goals
to guide decisions and help motivate
employees.
Directing, which involves decisions
and actions to achieve budgeted goals.
Controlling, which involves comparing
actual performance against the
budgeted goals.
LO 1
Objectives of Budgeting
A budgetary unit of a company is
called a responsibility center.
Each responsibility center is led by a
manager who has the authority and
responsibility for achieving the
centers budgeted goals.
LO 1
Objectives of Budgeting
As time passes, the actual performance
of a responsibility center can be
compared against the budgeted goals.
This provides prompt feedback to
managers and employees about their
performance.
If necessary, responsibility centers can
use such feedback to adjust their
activities in the future.
LO 1
LO 1
LO 1
LO 2
Budgeting Systems
The budgetary period for operating
activities normally includes the fiscal
year of a company.
A variation of fiscal-year budgeting,
called continuous budgeting,
maintains a 12-month projection into
the future. budgeting requires
Zero-based
managers to estimate sales,
production, and other operating data
as though operations are being
started for the first time.
LO 2
Static Budget
A static budget shows the expected
results of a responsibility center for
only one activity level. The budget
does not change even if the activity
changes.
A static budget is used by many
service companies and for some
Disadvantage:
administrative do
functions
of for
not adjust
manufacturing
companies.
changes
in revenues
and expenses
that occur as volumes change.
LO 2
Flexible Budget
Flexible budgets show the expected
results of a responsibility center for
several activity levels.
A flexible budget is, in effect, a
series of static budgets for different
levels of activity.
LO 2
Flexible Budget
If Colter Manufacturing Companys Assembly
Department spent $70,800 to produce 10,000
units, how much over or under budget would
the department manager be when using a
flexible budget?
The firm
would be
under
budget by
$200
($71,000
$70,800).
LO 3
Master Budget
An integrated set of operating,
investing, and financing budgets for
a period of time.
LO 3
Master Budget
For a manufacturing company, the
master budget consists of the following
integrated budgets:
Operating Budgets
Sales budget
Cost of goods sold budget:
Production budget
Direct materials purchases budget
Direct labor cost budget
Factory overhead cost budget
Selling and administrative expenses budget
Financing Budget
Cash budget
Investing Budget
Capital expenditures budget
LO 4
Sales Budgets
The sales budget begins by
estimating the quantity of sales.
Once sales quantities are estimated,
the expected sales revenue can be
determined by multiplying the
volume by the expected unit sales
price.
LO 4
Sales Budgets
The prior years sales quantities are
revised for such factors as the following:
Backlog of unfilled sales orders
Planned advertising and promotion
Productive capacity
Projected pricing changes
Findings of market research studies
Expected industry and general economic
conditions
LO 4
Sales Budgets
Elite Accessories Inc. manufactures
wallets and handbags that are sold in
two regions, the East and West regions.
Elite Accessories estimates the
following sales quantities and prices for
2012.
LO 4
Production Budget
Estimates the number of units to be
manufactured to meet budgeted
sales and desired inventory levels.
Elite Accessories Inc. expects the
following inventories of wallets and
handbags:
LO 4
Production Budget
Sales
Budget
Production
Budget
Expected
Expected units
units to
to be
be sold
sold
+Desired
+Desired units
units in
in ending
ending inventory
inventory
Estimated
Estimated units
units in
in beginning
beginning
inventory
inventory
Total
Total units
units to
to be
be produced
produced
LO 4
LO 4
Production
Budget
Direct
Direct
Materials
Materials
Purchases
Purchases
Budget
Budget
Materials
Materials needed
needed for
for production
production
+
+ Desired
Desired ending
ending materials
materials inventory
inventory
Estimated
Estimated beginning
beginning materials
materials
inventory
inventory
Direct
Direct materials
materials to
to be
be purchased
purchased
LO 4
Production
Budget
Direct
Direct
Materials
Materials
Purchases
Purchases
Budget
Budget
Direct
Direct Labor
Labor
Cost
Cost Budget
Budget
LO 4
Production
Budget
Direct
Materials
Direct
Materials
Purchases
Purchases
Budget
Budget
Direct
DirectLabor
Labor
Cost
CostBudget
Budget
Factory
Factory
Overhead
Overhead
Cost
CostBudget
Budget
LO 4
LO 4
Production
Budget
Direct
Materials
Direct
Materials
Purchases
Purchases
Budget
Budget
Direct
DirectLabor
Labor
Cost
CostBudget
Budget
Factory
Factory
Overhead
Overhead
Cost
CostBudget
Budget
LO 4
LO 4
Cost of
Goods
Sold Budget
Selling &
Administrative
Expenses
Budget
Production
Budget
Direct
Materials
Direct
Materials
Purchases
Purchases
Budget
Budget
Direct
DirectLabor
Labor
Cost
CostBudget
Budget
Factory
Factory
Overhead
Overhead
Cost
CostBudget
Budget
LO 4
Learning Objective 5
1. Describe budgeting, its objectives,
and its impact on human behavior.
2. Describe the basic elements of the
budget process, the two major types
of budgeting, and the use of
computers in budgeting.
3. Describe the master budget for a
manufacturing company.
4. Prepare the basic income statement
budgets for a manufacturing
company.
5. Prepare balance sheet budgets for a
LO 5
Cash Budget
Estimates the expected receipts
(inflows) and payments (outflows) of
cash for a period of time.
LO 5
February
March
Note A:
97,000
LO 5
February
March
97,000
Note B:
LO 5
February
March
97,000
669,600 523,800
LO 5
LO 5
From
From Exhibit
Exhibit 17
17
Note A:
LO 5
LO 5
LO 5