Professional Documents
Culture Documents
20-1
CHAPTER 20
Budgetary Planning
Chapter
20-2
Chapter Preview
Chapter
20-3
Study Objectives
Chapter
20-4
Preview of Chapter
Chapter
20-5
Budgetary Planning
Budgeting in
Preparing the Preparing the
Budgeting Non-
Operating Financial
Basics manufacturing
Budgets Budgets
Companies
Budget
A formal written statement of management’s plans
for a specified future time period, expressed in
financial terms.
Primary way to communicate agreed-upon
objectives to all parts of the company.
Promotes efficiency.
Control device - important basis for performance
evaluation once adopted.
Chapter
20-7
Budgeting Basics – Role of Accounting
Chapter
20-8
Budgeting Basics - Benefits
Chapter
20-9 LO 1: Indicate the benefits of budgeting.
Budgeting Basics - Benefits
Chapter
20-10 LO 1: Indicate the benefits of budgeting.
Budgeting Basics - Benefits
A budget is an
aid
to management
not a substitute
for management.
Chapter
20-11 LO 1: Indicate the benefits of budgeting.
Review Question
Chapter
20-12 LO 1: Indicate the benefits of budgeting.
Effective Budgeting
Chapter
20-13 LO 2: State the essentials of effective budgeting.
The Budget Period
Chapter
20-14 LO 2: State the essentials of effective budgeting.
The Budgeting Process
Participative Budgeting.
May inspire higher levels of performance or
discourage additional effort.
Depends on how budget developed and
administered.
Invite each level of management to participate.
Advantages:
More accurate budget estimates because lower
level managers have more detailed knowledge of
their area.
Tendency to perceive process as fair due to
involvement of lower level management.
Overall goal - produce a budget considered fair and
achievable by managers while still meeting corporate
goals.
Risk of unreliable budgets greater when they are
“top-down.”
Chapter LO 2: State the essentials of effective budgeting.
20-18
Participative Budgeting
Disadvantages:
Can be time consuming
and costly.
Can foster budgetary
“gaming” through
budgetary slack:
Situation where managers intentionally
underestimate budgeted revenues or
overestimate budgeted expenses so that
budget goals are easier to meet.
Illustration 20-1
Flow of budget data from lower management to top levels.
a. Top-down budgeting.
b. Management acceptance.
c. Research and analysis.
d. Sound organizational structure.
Chapter
20-22 LO 2: State the essentials of effective budgeting.
The Master Budget
Chapter
20-24
Illustration 20-2
LO 3: Identify the budgets that comprise the master budget.
Operating Budgets: Sales Budget
Illustration 20-3
Chapter
20-26 LO 3: Identify the budgets that comprise the master budget.
Operating Budgets: Production Budget
Illustration 20-4
Essential to have a realistic estimate of ending
inventory.
Chapter LO 3: Identify the budgets that comprise the master budget.
20-27
Operating Budgets: Production Budget
Illustration 20-5
Chapter
20-28 LO 3: Identify the budgets that comprise the master budget.
Operating Budgets: Direct Materials Budget
Illustration 20-6
Budgeted cost of direct materials to be
purchased = required units of direct materials ×
anticipated cost per unit.
Illustration 20-7
Chapter
20-31 LO 3: Identify the budgets that comprise the master budget.
Operating Budgets: Direct Labor Budget
Illustration 20-8
Chapter
20-32 LO 3: Identify the budgets that comprise the master budget.
Operating Budgets: Direct Labor Budget
Illustration 20-9
Chapter
20-33 LO 3: Identify the budgets that comprise the master budget.
Operating Budgets: Manufacturing Overhead
Illustration 20-10
Illustration 20-11
Chapter LO 3: Identify the budgets that comprise the master budget.
20-37
Review Question
Chapter
20-38 LO 3: Identify the budgets that comprise the master budget.
Operating Budgets:
Budgeted Income Statement
Important end-product of the operating budgets.
Indicates expected profitability of operations.
Provides a basis for evaluating company
performance.
Prepared from the operating budgets:
Sales Budget,
Production Budget,
Direct Materials Budget,
Direct Labor Budget,
Manufacturing Overhead Budget, and
Selling and Administrative Expense Budget.
Chapter LO 4: Describe the sources for preparing the budgeted income statement.
20-39
Operating Budgets:
Budgeted Income Statement
Example – Hayes Company
To find cost of goods sold:
First, determine the unit cost of one Kitchen-mate:
Illustration 20-12
Chapter
20-40 LO 4: Describe the sources for preparing the budgeted income statement.
Operating Budgets:
Budgeted Income Statement
Illustration 20-13
Chapter
20-41 LO 4: Describe the sources for preparing the budgeted income statement.
Review Question
a. Sales budget.
b. Selling and administrative budget.
c. Capital expenditure budget.
d. Direct labor budget.
Chapter
20-42 LO 4: Describe the sources for preparing the budgeted income statement.
Financial Budgets: Cash Budget
Basic Format
Illustration 20-14
Chapter
20-44 LO 5: Explain the principal sections of a cash budget.
Financial Budgets: Cash Budget
Illustration 20-15
Illustration 20-16
Now prepare the Cash Budget based on the assumptions
and preceding schedules.
Chapter LO 5: Explain the principal sections of a cash budget.
20-49
Financial Budgets: Cash Budget
Illustration 20-17
Chapter
20-50 LO 5: Explain the principal sections of a cash budget.
Financial Budgets: Cash Budget
A projection of financial
position at the end of
the budgeted period.
Illustration 20-18
Chapter
20-53 LO 5: Explain the principal sections of a cash budget.
Review Question
a. $96,000
b. $90,000 1st Quarter 2nd Quarter
28,000 42,000 = 60%
c. $78,000 36,000 = 40%
78,000
d. $72,000
Chapter
20-54 LO 5: Explain the principal sections of a cash budget.
Budgeting: Merchandisers
Illustration 20-20
BE 20-8
North Company
Budgeted Income Statement
For Year Ending December 31, 2012
Sales $2,000,000
Cost of Goods Sold (50,000 units @ $22) 1,100,000
Gross Profit 900,000
Selling & Administrative Expenses 300,000
Income from Operations 600,000
Income Tax Expense 150,000
Net Income $450,000
Chapter
20-61
Copyright
Copyright © 2011 John Wiley & Sons, Inc. All rights reserved.
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in Section 117 of the 1976 United States Copyright Act without
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responsibility for errors, omissions, or damages, caused by the
use of these programs or from the use of the information
contained herein.
Chapter
20-62